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Are You a Union Employer Thinking About Leaving the Union? Withdrawal Liability Might Make You Think Again

November 2013

By: Ryan L. Young, Esq.

We are all too aware of America's recent economic recession and the adverse effect it has had on businesses. In this economically challenging climate of dwindling revenues, many businesses are looking to survive by cutting costs. For union employers in particular, the burdensome wage and fringe benefit terms found in their collective bargaining agreements often present an enticing cost-cutting option.

Unfortunately, given the state of the economy, unions are unlikely to agree to concessions on these terms and conditions. Thus, the union employer is often left with one option to lower these costs: terminating its collective bargaining agreement with the union. But before the union employer goes down this poorly lit alley, it is wise to know what is lurking in the darkness before it's too late; a concept called withdrawal liability.

Withdrawal liability was created by Congress' 1980 Multi-Employer Pension Plan Amendments Act (MPPAA), which amended the Employee Retirement and Income Security Act (ERISA).

Under MPPAA, Congress stated that any employer that ceases to have an obligation to contribute to a multi-employer pension plan will be liable to the plan for a proportionate share of the plan's underfunded, vested benefits. From this general statement, three important points emerge. First, withdrawal liability is limited to employers that participate in multi-employer pension plans. Second, withdrawal liability is triggered when an employer ceases to have an obligation to contribute to the pension plan (e.g. when the employer terminates a collective bargaining agreement with a union which obligated the employer to contribute to the pension plan). Third, withdrawal liability is based on a proportion of the pension plan's underfunded, vested benefits (i.e. the pension plan has to be underfunded). In addition, MPPAA also includes a concept called partial withdrawal liability under which an employer could face liability if its contributions drop significantly for a few consecutive years.

Needless to say, this is a complex area of law and a full discussion of all of the issues raised in its wake is well beyond the scope of this article. But every union employer that participates in a multi-employer pension plan needs to be aware of withdrawal liability's existence before they cease to have an obligation to the pension plan (and possibly trigger complete withdrawal liability) or before their contributions drop significantly for a few consecutive years (and possibly trigger partial withdrawal liability).

If you are a union employer that participates in a multi-employer pension plan, it would be prudent to seek legal advice concerning the issue of withdrawal liability before making any business decision that would cease your obligation to contribute to the pension plan or before your contributions begin a significant decline.

If you have any questions or concerns about this topic, please contact Ryan Young of Wessels Sherman's Chicago, Illinois office at (312) 629-9300 or [email protected].