“Windfall” recovery no defense under ERISA to funds' claim for unpaid contributions
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Tuesday, August 7, 2018

“Windfall” recovery no defense under ERISA to funds' claim for unpaid contributions

By Pension and Benefits Editorial Staff

Under the plain terms of a collective bargaining agreement, an employer was required to pay over $1 million in unpaid contributions, damages, and interest to multiemployer health and annuity funds on behalf of its nonunion employees, even though it provided nonunion employees with health insurance and access to a 401(k) plan, the U.S. Court of Appeals in Philadelphia (CA-3) has ruled. Complaints of an “unjust windfall recovery” are not a defense against a multiemployer plan's claim for delinquent contributions under ERISA Sec. 515.

Three union multiemployer funds—a pension fund, an annuity fund and a health and welfare fund—-were third-party beneficiaries to a collective bargaining agreement agreed to by the union and an employer. By its plain terms, the CBA required the employer to contribute to all three funds on behalf of “all employees” within the CBA's trade and geographic scope, regardless of their union status.

A compliance audit by the funds revealed the employer was making contributions only on behalf of its union employees, not its nonunion employees. The employer argued that it had an unwritten understanding with the union based in part on past practices that it was required to contribute only on behalf of its union employees.

The district court relied upon the plain language of the CBA requiring contributions on behalf of “all employees” to conclude that the employer owed unpaid contributions to the three funds under ERISA Sec. 515. Based on an employment audit, the district court determined the employer owed nearly $1 million to each of the pension and health funds (including liquidated damages and interest) while about $350,000 was owed to the annuity fund.

The employer appealed the amount of the damage award with respect to the health and annuity funds. It had maintained health insurance and a 401(k) plan for its nonunion employees. These alternative benefits should offset the total award to the funds, the employer said. Otherwise, the employer reasoned, the funds would receive an unjust windfall recovery of contributions on behalf of employees for whom they had provided no benefits.

The appellate court rejected this argument and affirmed the lower court's judgment in favor of the funds. The Third Circuit has recognized three defenses for employers against a fund's claim to recover delinquent contributions under ERISA Sec. 515, but preventing funds from receiving an “unjust windfall recovery” is not one of them. As third-party beneficiaries of CBAs, multiemployer plans must be able to rely on the plain language of those agreements.

Source: Kelly v. Gas Field Specialists, Inc. (CA-3).

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