Pension & Benefits News Plan trustees can’t “decelerate” liability payments previously accelerated after employer default
Tuesday, November 19, 2019

Plan trustees can’t “decelerate” liability payments previously accelerated after employer default

By Pension and Benefits Editorial Staff

ERISA does not permit pension fund trustees who, having exercised their right under ERISA to “accelerate” payment of the entire amount of withdrawal liability owed by an employer that defaults on an installment payment, subsequently to “decelerate” the debt, in order to essentially reinstate an installment plan arrangement with the employer, the U.S. Court of Appeals in Chicago (CA-7) has ruled. Declining pension fund trustees’ invitation to create federal common law to permit deceleration of withdrawal liability, the court concluded that the trustee’s claim was time-barred under ERISA’s applicable six-year limitations period.

Cycle of defaults. The plaintiffs in this action served as the trustees of a pension plan for unionized electrical workers. Several decades ago, the unions set up the pension plan with Revcon Technology and S&P Electric, two electrical contractors that shared common ownership. In 2003, Revcon withdrew from the plan completely. S&P followed a year later. ERISA, as modified by the Multiemployer Pension Plan Amendments Act, requires employers who withdraw from underfunded pension plans to pay withdrawal liability, either in installments or in a lump sum. If an employer defaults on an installment payment and does not cure the default within 60 days, then, under ERISA Sec. 4219(c)(5), the plan may accelerate the withdrawal liability: that is, it may require the employer to pay the entire withdrawal liability amount immediately.

In 2006, the plan’s trustees notified the companies they owed $394,788 in withdrawal liability and demanded payment in 80 quarterly payments of $3,818. In 2008, after Revcon missed several payments, the trustees informed the companies of the defaults and demanded immediate payment. When Revcon still failed to pay after 60 days, the trustees accelerated the outstanding liability and filed suit for the entire amount plus interest, totaling $521,553.

Revcon offered to cure its default and resume making quarterly payments in exchange for the trustees’ dismissal of the lawsuit. The trustees agreed and voluntarily dismissed the suit. Revcon cured its default, made three more payments, and then defaulted again in April 2009. The trustees again sued seeking the defaulted payments and the entire outstanding balance plus interest, for a total of $492,988. Revcon again promised to cure its defaults and resume making payments, and the trustees again voluntarily dismissed the suit. The parties repeated this cycle of default, lawsuit, promise to cure and voluntary dismissal three more times. Each complaint referred to the acceleration of the debt in 2008, making no claim the acceleration was revoked. Finally, in 2018, after yet another default by Revcon, the trustees filed this action.

The 2018 case differed from its five predecessors in that, instead of claiming the entire outstanding withdrawal liability, the plan claimed only the delinquent payments (plus interest) that Revcon had missed since the last voluntary dismissal in 2015, in the amount of $33,239.98.

Statute of limitations. Rather than repeat the cycle for a sixth time, Revcon moved to dismiss the case. Among other things, it asserted that because the trustees first sought to collect the entire debt in 2008, the six-year year statute of limitations under ERISA Sec. 4301(f) expired in 2014.

The trustees countered that they revoked the 2008 acceleration of the withdrawal liability when they voluntarily dismissed the 2008 complaint. Further, they argued that each of the subsequent dismissals had the same decelerating effect.

The district court agreed with Revcon that this case was not timely filed. It noted that the trustees’ 2009, 2011, 2013, and 2015 complaints all stated that the withdrawal liability was accelerated in 2008, which belied the trustees’ argument that acceleration had been revoked. Holding the trustees to their earlier pleadings, the district court dismissed the case.

No deceleration under ERISA. The appellate court upheld the district court’s finding in favor of the employer. The trustees’ argument, the court reasoned, hinged upon whether the trustees possessed the ability to revoke the acceleration, or, to put it another way, to “decelerate” the employer’s withdrawal liability. The trustees conceded that ERISA is silent as to whether deceleration is permitted but they urged the court to develop federal common law regarding deceleration in the withdrawal liability context. This would fill what the trustees viewed as a “gap” in ERISA’s statutory language.

The Seventh Circuit declined the invitation, noting that it, unlike other circuits, “has consistently refused to create federal common law remedies or implied causes of action under ERISA.” Further, it rejected the existence of a general principle of contract law that allows any acceleration of debt. With respect to the most common forms of accelerated debt—foreclosed mortgages and bankruptcy debt—there must be a contractual or statutory foundation before deceleration can occur. No such foundation exists in the ERISA withdrawal liability context. Congress could have included one in ERISA, but it did not.

Without the ability to decelerate, the trustees’ claim is time-barred, the court concluded. Once the plan accelerated the withdrawal liability in 2008, the statute of limitations for the entire liability began to run on the date of deceleration, as at that time the trustees had the right to sue for the entire accelerated amount. Thus, while the trustees may continue to have a state law claim for breach of the settlement agreements, their ERISA claim expired in 2014.

Source: Bauwens v. Revcon Technology Group, Inc. (CA-7).

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