Unions Responsible for Employer's Withdrawal Liability If...
April 12, 2012
By Larry Cary
When does a union pay an employer’s withdrawal liability from a pension plan? A Federal Court says, when the collective bargaining agreement says it will. An Ohio Federal Appeals Court recently ordered Teamsters Local 89 to reimburse an employer, Shelter Distribution, Inc., when the employer became liable to pay the Teamsters Central States Pension Plan $57,000 in withdrawal liability.
The union ceased to represent the employees at Shelter shortly before the collective bargaining agreement expired in 2001. Under the law, this caused Shelter to withdraw from the pension plan because it no longer had a legal obligation to make contributions. This caused the pension plan to assess withdrawal liability on Shelter. Withdrawal liability exists in a private sector multiemployer pension plan when it is underfunded; that is to say, when it has insufficient assets to pay for the promised pension benefits. The purpose of withdrawal liability is to force employers leaving a pension plan to pay their fair share of the plan’s underfunding.
Shelter demanded indemnification from the union. The expired collective bargaining agreement had language saying that Shelter was only liable for making contributions to the pension plan as specified in the labor agreement and also said the union would indemnify the employer for “any contingent liability” which may be imposed under the Multiemployer Pension Plan Amendments Act of 1984.
Unions should check their labor agreements to determine if similar problematic language exists, and if so, try to develop a strategy for changing these clauses in the next round of negotiations. Because of the Pension Protection Act’s requirements for a rehabilitation or funding improvement plan for underfunded pension plans, this area of the law is complicated and unions should consult with counsel when devising a strategy. Local 69 was lucky that the withdrawal liability they had to pay was only $57,000. Since the market crash of 2007, it is not uncommon for larger employers to have withdrawal liability running in the millions and an indemnification clause in the labor agreement could threaten the union’s existence.
Larry Cary is a managing partner in the law firm of Cary Kane LLP, which represents unions, and union affiliated pension and welfare plans. He has practiced law for more than 25 years.