The Multiemployer Withdrawal Liability Dispute
Ridgeline Construction has contributed to the Building Trades Pension Fund, a multiemployer plan, for 12 years under a collective bargaining agreement with Local 88. In year 13, Ridgeline's CBA expires and the union strikes. Ridgeline permanently ceases operations at its only union facility and lays off all 45 union employees. The fund's actuary calculates Ridgeline's withdrawal liability at $2.3 million based on the fund's unfunded vested benefits. Ridgeline disputes the calculation, arguing that the fund used an outdated actuarial assumption and that the withdrawal should be treated as a partial withdrawal because Ridgeline continues to operate a non-union facility. The fund has not provided the actuarial assumptions used in the calculation.
1. Determine whether Ridgeline's cessation constitutes a complete or partial withdrawal and the procedural steps available to dispute the assessment.
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Under ERISA section 4203, a complete withdrawal occurs when an employer permanently ceases to have an obligation to contribute under one or more collective bargaining agreements, or permanently ceases all covered operations under the plan. Ridgeline permanently ceased operations at its only union facility and laid off all 45 union employees. That is a complete withdrawal, not a partial withdrawal.
A partial withdrawal under section 4205 occurs when there is a 70% decline in contribution base units over a three-year period, or a 90% decline in a single year, or a partial cessation of the obligation to contribute. Ridgeline's continued operation of a non-union facility does not create a partial withdrawal because the non-union facility does not contribute to the plan. The complete cessation of the union facility is a complete withdrawal.
Procedural steps. The fund must notify Ridgeline of the withdrawal liability within a reasonable time after the withdrawal. Ridgeline may dispute the assessment by initiating arbitration within 90 days after the earlier of the date the fund notifies the employer of the amount or the date the employer is notified of the fund's demand for payment. Arbitration is the exclusive remedy for disputes over the amount of liability, the actuarial assumptions, and the fund's determination.
Ridgeline must also make interim payments while the dispute is pending. The fund may require payments based on its calculation, and Ridgeline's failure to pay may result in additional liability. Ridgeline should request the actuarial assumptions and the fund's calculation methodology to prepare for arbitration.
2. Analyze the fund's obligation to provide actuarial assumptions and the consequences of its failure to do so.
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Under ERISA section 4219 and the withdrawal liability regulations, the fund must provide the employer with a written notice of the withdrawal liability, including the amount and the actuarial assumptions used to calculate it. The fund's failure to provide the assumptions is a procedural defect.
ERISA section 4219(b)(1) requires the plan sponsor to notify the employer of the amount of liability and the schedule for payment. The regulations at 29 C.F.R. section 4219.11 require the notice to include the basis for the calculation. If the fund fails to provide the assumptions, Ridgeline may argue that the assessment is invalid or that the arbitration should be stayed until the information is provided.
However, the failure to provide assumptions does not automatically invalidate the assessment. The employer must still initiate arbitration within the 90-day period. The arbitrator may consider the fund's failure to provide information in determining whether the calculation is reasonable.
The fund's failure may also give rise to a claim for breach of fiduciary duty under ERISA section 404(a) if the fund acted arbitrarily or in bad faith. Ridgeline should request the assumptions in writing and document the request. If the fund refuses, Ridgeline may seek court intervention to compel production, though arbitration is generally the exclusive remedy for the amount of liability.
Ridgeline should also consider whether the fund's use of an outdated actuarial assumption violates the actuarial standards of practice and whether the assumption is reasonable in light of the fund's actual experience.