Withdrawal Liability

[ERISA-Bubs]

We have a unique situation where our company has both union and non-union employees participating in a multiemployer plan. We would like to take our non-union employees out of the plan, but we don't want to incur withdrawal liability. I don't think we will because:

1) we are not closing a whole plan or division

2) the nonunion employees do not participate under a collective bargaining agreement (but do participate under their own agreement).

3) the nonunion employees are a small percentage of our total

The fund, of course, plans to argue that (2) applies because the participants participate in the Fund under their own agreement (even though it's not a CBA).

A few questions:

1) can we get some sort of "declaratory judgment" to determine whether or not this would result in a "withdrawal" while the nonunion employees are still in the plan?

2) If we try to get a "declaratory Judgment" or if we fight withdrawal liability after the nonunion employees leave, will we have to pay the Fund's attorney's fees or other penalties if we lose?

3) can we take some, but not all, nonunion employees out of the plan without incurring withdrawal liability? If so, is there a percentage threshold?

Thanks for any help you can provide!

[Jim Dexter]

Most of these are legal questions rather than actuarial (I'm an actuary specializing in consulting to employers on multiemployer issues) but I'll take a shot at a few of the questions. The situation is actually one I have seen before.

First, my understanding is that a special agreement under which nonunion employees contribute is generally viewed the same way as a collective bargaining agreement. Thus, ceasing to have an obligation to contribute under the special agreement would appear to trigger a partial withdrawal under ERISA § 4205(b)(2)(A)(i). And, depending on what your contribution base unit history has been, the liability may be a much greater portion of the total liability than one might expect based on the size of the group (or it could be much less). Estimating that would require a bit of actuarial analysis.

Second, before you attempt to pull out some (but not all) of the nonunion employees, you would want to make sure that didn't violate the special agreement which presumably defines which nonunion employees are included. Also, in all of this, you need to be careful not to do something that the plan can successfully contend was a transaction with a principal purpose of avoiding or evading withdrawal liability (see ERISA § 4212©).

[ERISA-Bubs]

First, my understanding is that a special agreement under which nonunion employees contribute is generally viewed the same way as a collective bargaining agreement. Thus, ceasing to have an obligation to contribute under the special agreement would appear to trigger a partial withdrawal under ERISA § 4205(b)(2)(A)(i).

Jim -

Thanks for the answer! You say you've seen this situation before--have you seen an employer pay withdrawal liability when only the non-union employees stop participating? I agree that a special agreement is generally viewed the same as a collective bargaining agreement, but, under the law it appears this is one situation where it is limited to ceasing to participate under a CBA (whereas other sections expand it to any agreement).

Have you ever seen an employer fight withdrawal liability under this situation and lose?