ERISA-Second Circuit Holds That An Employer May Withdraw From A Multiemployer Pension Plan In Critical Status

In Trustees of the Local 138 Pension Trust Fund v. Honerkamp Co. Inc., Docket No. 11-1322-cv (2nd Cir. 2012), the plaintiff, the Trustees of the Local 138 Pension Trust Fund (the “Fund”), were appealing the district court’s summary judgment in favor of the defendant, F.W. Honerkamp Co. (“Honerkamp”). In this case, Honerkamp withdrew from the Fund-a multiemployer pension plan- after the Fund had reached “critical status” as defined by the Pension Protection Act of 2006 (the “PPA”), an amendment to ERISA, and after the collective bargaining agreements (“CBAs”) requiring Honerkamp to contribute to the Fund had expired. The Trustees sued, arguing that the PPA prevented Honerkamp from withdrawing and required it to make certain ongoing pension contributions pursuant to the Fund’s rehabilitation plan. The district court agreed with Honerkamp that the PPA did not forbid its withdrawal or require those contributions.

In analyzing the case, the Second Circuit Court of Appeals (the “Court”) said that the PPA includes measures designed to protect and restore multiemployer pension plans in danger of being unable to meet their pension distribution obligations in the near future. The statute created two categories for such plans: “endangered” and “critical.” Under the PPA, a pension plan is endangered if it is less than eighty percent funded, and it is in critical status if it is less than sixty-five percent funded. (ERISA § 305(b), 29 U.S.C. § 1085(b)). If a pension plan falls into critical status, the plan sponsor must notify the participating employers and unions (ERISA § 305(b)(3)(D), 29 U.S.C. § 1085(b)(3)(D)), and each participating employer must contribute an additional surcharge of five to ten percent of the contribution amount required under the applicable CBA. (See ERISA § 305(e)(7), 29 U.S.C. § 1085(e)(7)). Further, the plan sponsor must adopt a rehabilitation plan to restore the plan’s financial health. The rehabilitation plan must include a default schedule, which sets forth the contributions an employer must make if the employer and union do not agree on any other schedule.

In this case, the Fund went into critical status and the rehabilitation plan was formulated. It was after the rehabilitation plan was completed, and the applicable CBAs expired, that Honerkamp withdrew from the Fund. The Trustees argue that, under the PPA, Honerkamp cannot withdraw, and must continue participating in the Fund while contributing in accordance with the rehabilitation plan’s default schedule. (See ERISA § 305(e)(3)(C), 29 U.S.C. § 1085(e)(3)(C)).

After reviewing the PPA and its legislative history, the Court concluded that , in enacting the PPA, Congress did not intend to prevent employers from withdrawing from multiemployer pension plans in critical status. Thus, Honerkamp’s withdrawal from the Fund is permissible. As such, the Court affirmed the district court’s summary judgment in Honerkamp’s favor.

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