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Withdrawal Liability May Extend to Unrelated Entity if Entity Has Legal Obligation To Contribute To Pension Fund

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November 4, 2009

In Central States v. Int’l Comfort Products, LLC, the Sixth Circuit Court of Appeals wrestled with the question of which entity may ultimately be obligated to pay withdrawal liability to a multiemployer pension fund.  Parting ways with the Seventh, Eighth, and Ninth Circuits, the Sixth Circuit found that a contractual obligation to make fund contributions was not necessary, and that a legal obligation under labor law would suffice to create such liability.  The decision touches on a number of important issues concerning withdrawal liability that employers should be aware of if they participate in multiemployer pension funds.

In 1971, International Comfort Products (ICP), a manufacturer of heating and cooling products, engaged Top Transportation Services (Top) to provide truck driving services for certain ICP operations.  Top was the signatory to a collective bargaining agreement with the Teamsters, and was responsible for paying its employees and making pension contributions on their behalf to the Central States pension fund.  ICP was responsible for reimbursing Top for these costs.  In 2002, ICP terminated its agreement with Top, and Top ceased its covered operations.  This cessation of operations by Top triggered an assessment of withdrawal liability against Top by the Central States pension fund.  After an eventual default judgment against Top and failure to collect payment by the fund, the withdrawal liability amount remained unsatisfied.  Therefore, the Central States pension fund sought to collect the withdrawal liability amount directly from ICP.

If an employer withdraws from a multiemployer pension fund, then the employer is liable to the fund for withdrawal liability – i.e., a portion of the unfunded vested benefits of the plan if the plan is underfunded.  While only an employer can be subject to withdrawal liability, the identity of the “employer” is not always obvious.  For example, under ERISA § 4001(b)(1), all trades or businesses that are under common control with the employing entity are treated as a single employer for withdrawal liability purposes.  Further, ERISA § 3(5) provides that the “employer” includes any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan.

Borrowing the language from ERISA § 3(5), several Circuits have held that the “employer” includes any person who is obligated to contribute to the fund either as a direct employer or indirectly.  However, in Int’l Comfort Products, the Sixth Circuit differed from the view of the Seventh, Eighth, and Ninth Circuits and permitted the case to proceed against an entity that may only have a legal, rather than contractual, obligation to contribute to the fund.  Noting that the obligation to contribute to a multiemployer pension fund can arise under labor-management relations law as well as by contract, the Sixth Circuit remanded the case to the district court for a determination of whether ICP had a duty under labor-management relations law to make contributions and pay any assessment of withdrawal liability.

The decision in Int’l Comfort Products serves to remind employers to carefully analyze their business relationships to determine whether there is any exposure for multiemployer pension plan withdrawal liability in the event of a cessation of operations.  Similarly, the decision is yet another indication of how aggressive multiemployer pension funds can be  in their efforts to collect unpaid withdrawal liability from employers.

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