Employment Law Daily Construction company can’t avoid pension withdrawal liability by acquiring nonunion business, resuming work
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Thursday, May 5, 2016

Construction company can’t avoid pension withdrawal liability by acquiring nonunion business, resuming work

By Dave Strausfeld, J.D. A multiemployer pension plan was authorized to assess withdrawal liability against a construction company whose parent company soon purchased a nonunion construction company that performed the same type of work for which pension contributions had been made, ruled the Tenth Circuit on summary judgment. To hold otherwise would mean that a construction company could avoid withdrawal liability by terminating its obligation to contribute to a pension fund and then acquiring a nonunion business that resumed the covered work. This would run contrary to the aim of the Multiemployer Pension Plan Amendment Act (MPPAA) to protect multiemployer pension funds from the adverse effects of employer withdrawals (Ceco Concrete Construction, LLC v. Centennial State Carpenters Pension Trust, May 3, 2016, Matheson, S.). CBA not renewed. Ceco, a construction company, decided it could no longer afford to bid for projects against nonunion competitors that did not pay into pension plans. When its collective bargaining agreement with the carpenters’ union expired, it decided to not renew the CBA, and thus its obligation to contribute to the multiemployer pension plan covering its carpenters ceased. About six months later, its parent company purchased CFA, which began performing the same type of work as Ceco previously had. The Plan assessed withdrawal liability against Ceco of nearly $1 million. The company challenged this assessment. Special provisions for construction industry. Construction employers are treated more generously than most other employers under the MPPAA, in order to take account of the temporary nature of construction projects. Specifically, for most employers, withdrawal liability arises when the employer ends its duty to contribute or ceases covered operations. But a construction employer has to do more to incur withdrawal liability: After halting its contribution obligation, it must also either continue covered operations or resume them within five years to be liable. Resumed operations? The issue here was whether the Plan could legitimately impose withdrawal liability against Ceco as a result of CFA’s resumed work. Both an arbitrator and the district court had answered this question in the negative, concluding that only parties under common control on the date of cessation (when its obligation to contribute ended and its CBA expired) could incur withdrawal liability (and at that point in time, the two companies were not yet under common control). The appeals court disagreed and held that withdrawal liability may be assessed against all entities under common control at the time of continuation or resumption of covered work. Five-year window. In the construction context, the appeals court explained, withdrawal can "occur at any time in the five years after the employer ceases its obligation to contribute." This means a plan must continue to evaluate the operations of the "common control group" within the five-year period to determine whether a withdrawal occurs. "And any entity under common control when withdrawal actually happens—meaning on the date the covered work resumes—can be held liable," the appeals court emphasized, rejecting the district court’s position. Can’t circumvent withdrawal liability. This interpretation also advanced the statute’s purpose, the appeals court stressed, where the position adopted by the district court would enable employers to make an "end run" around withdrawal liability. For instance, an employer could avoid liability by terminating its obligation to contribute to a multiemployer pension fund and then acquiring a nonunion business that resumed its construction work (as happened here). The employer would then escape withdrawal liability, which would be contrary to the MPPAA’s aim of protecting pension funds from the adverse effects of employer withdrawals and of imposing withdrawal liability on employers under common control regardless of corporate form. In sum, the Plan was authorized to assess withdrawal liability against Ceco, because CFA later came under common control and resumed the same covered work within five years.

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