Pension & Benefits News Partial withdrawal credit correctly applied against employer's complete withdrawal liability
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Friday, February 8, 2019

Partial withdrawal credit correctly applied against employer's complete withdrawal liability

By Pension and Benefits Editorial Staff

A multiemployer pension fund correctly applied a partial withdrawal credit against an employer's complete withdrawal liability from a multiemployer pension plan before it calculated the twenty-year limitation on annual payments, according to the U.S. Court of Appeals in San Francisco (CA-9). ERISA Sec. 4201(b)(1) plainly dictates the order of operations in calculating withdrawal liability: the adjustments described in ERISA Sec. 4206, including the prior withdrawal credit, precede the limitation on payment adjustment described in ERISA Sec. 4219(c)(1)(B).

Quad/Graphics, Inc., a commercial printing business, acquired Quebecor in 2010. Under the terms of collective bargaining agreements with a union, the employer was required to contribute to a multiemployer pension plan. In 2009, employees at the Memphis Quebecor facility voted to decertify their union, and Quebecor ceased participating on their behalf. Quad assumed the obligation to contribute to the fund with respect to the remaining Quebecor facilities. But, by 2011, employees at all of the former Quebecor facilities had decertified the union, and Quad completely withdrew from the fund.

The fund then determined Quad's withdrawal liability. It first applied ERISA Sec. 4206(b) to give Quad a credit for the partial withdrawal liability imposed after the 2009 Memphis Facility withdrawal. After applying the partial liability credit, the fund then applied the limitation under ERISA Sec. 4219(c)(1)(B), which provides for a twenty-year limitation on annual payments made to discharge an employer's complete withdrawal liability.

The employer disputed the sequence of calculations, claiming that the twenty-year limitation should be calculated first, and then be reduced by the partial withdrawal credit. The district court held the fund's application of the ERISA rules to be correct.

The Ninth Circuit affirmed the lower court's ruling in favor of the fund. In so doing it observed that ERISA withdrawal liability can be viewed as an “exit price equal to the employer's pro rata share of the pension plan's funding shortfall.” Withdrawal liability may be “partial"—imposed when “the employer permanently ceases to have an obligation to contribute under one or more, but fewer that all CBAs under which the employer has been obligated to contribute under the plan"—or “complete"—imposed when the employer “permanently ceases to have an obligation to contribute under the plan.”

Sequence of calculations. ERISA, the appellate court explained, provides step-by-step instructions for calculating employer withdrawal liability in ERISA Sec. 4201(b)(1). Specifically, that section instructs employers to calculate “the allocable amount of unfunded vested benefits,” and then to make a series of adjustments to that sum.

The first adjustment is specified by ERISA Sec. 4201(b)(1), which provides for an adjustment in case of a partial withdrawal “in accordance with” ERISA Sec. 4206. ERISA Sec. 4206(a) explains that “the amount of the employer's liability for a partial withdrawal” is a pro rata fraction of the liability the employer would have faced for a complete withdrawal. ERISA Sec. 4206(b) then credits the employer for any charges previously imposed for a prior partial withdrawal and reduces liability arising from the present withdrawal—whether complete or partial—accordingly.

The next step in the process is described in ERISA Sec. 4201(b)(1), which provides for an adjustment “then, to the extent necessary to reflect the limitation on annual payments under ERISA Sec. 4219(c)(1)(B).” This provision contains a method under which an employer can opt to satisfy a complete withdrawal liability, with interest, in installments. ERISA, the court explained, “fixes the amount of each payment and asks how many such payments there will have to be.” Then, ERISA Sec. 4219(c)(1)(B)“forgives all debt outstanding after 20 years.”

ERISA Sec. 4201 unambiguously provides that after first calculating the employer's complete withdrawal liability, any adjustment for a partial withdrawal required by ERISA Sec. 4206 comes “next", followed by the debt forgiveness adjustment. The appellate court rejected the employer's argument to the contrary.

SOURCE:  GCIU-Employer Retirement Fund v. Quad/Graphics, Inc. (CA-9).

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