Tax Law Defined® Blog

17 Ways to Avoid or Reduce Multiemployer Pension Plan Withdrawal Liability

17 Ways to Avoid or Reduce Multiemployer Pension Plan Withdrawal Liability

A multiemployer/union benefit plan is a plan that two or more employers contribute to under the terms of one or more collective bargaining agreements ("CBAs"). Multiemployer pension plans are governed by the Employee Retirement Income Security Act of 1974 (ERISA), as are most other employer retirement plans, but multiemployer plans are also subject to special rules added to ERISA in the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA). MPPAA imposes an exit penalty, referred to as “withdrawal liability,” on employers who withdraw from an underfunded plan. The plan must allocate a portion of the unfunded vested benefits in the plan to a participating employer when it withdraws from the plan, and the withdrawing employer must pay this withdrawal liability.

Withdrawal liability can be triggered when an employer has a significant reduction in its participating union workforce (a “partial withdrawal”), a complete reduction in its participating union workforce (a “complete withdrawal”), or when there is a withdrawal of all employers from the plan (a “mass withdrawal”). When a withdrawal occurs, the plan will determine whether all participants’ vested benefits exceed the value of plan assets and, if so, the plan will determine the withdrawing employer’s share of the unfunded amount based on the formula in the plan and send the employer a bill for the withdrawal liability. MPPAA includes several allowable formulas the plan can use to make this determination. For more background on withdrawal liability generally, click here for our previous article “Union Pension Plan Participation Can Create Massive Unexpected Liabilities.”

There are at least 17 provisions in MPPAA that abate, reduce, offset, or eliminate withdrawal liability.The following is a list of those provisions and a brief explanation of each is available in the full article by clicking here:

  1. Building and Construction Industry Exemption (ERISA § 4203(b))
  2. Entertainment Industry Exemption (ERISA § 4203(c))
  3. Long and Short Haul Trucking Industry, Household Goods Moving Industry and Public Warehousing Industry Exemption (ERISA § 4203(d))
  4. Special Liability Withdrawal Rules for other than Construction and Entertainment Industries (ERISA § 4203(f))
  5. Sale of Assets Exemption (where buyer has withdrawal liability exposure) (ERISA § 4204)
  6. Free Look (no withdrawal liability for certain temporary contribution obligation periods) (ERISA § 4210)
  7. De Minimis Rule (ERISA § 4209)
  8. No Withdrawal Considered to have Occurred in Certain Situations (ERISA § 4218)
  9. Sale of Assets Limitation on Withdrawal Liability (ERISA § 4225(a))
  10. Insolvent Employer Limitation (ERISA § 4225(b))
  11. 20-year “cap” on payments of withdrawal liability (ERISA § 4219(c)(1)(B))
  12. Individual Property not subject to Enforcement (ERISA § 4225(c))
  13. Reduction or Waiver of Complete Withdrawal Liability (ERISA § 4207)
  14. Reduction of Partial Withdrawal Liability (ERISA § 4208)
  15. Offset for Prior Partial Withdrawal Liability (ERISA § 4206(b)(1))
  16. Transfer of Liabilities (ERISA §§ 4211(e) and 4235)
  17. Certain adjustments to contribution or benefits disregarded in determining withdrawal liability (ERISA § 305(g))

For more information, please contact Michael Bindner or any other attorney in Frost Brown Todd’s Employee Benefits Group. View this article in its entirety here.

Post a comment:

*All fields are required.

Ask the Blogger

Do you have a topic that you would like discussed in a future blog article? Please let us know. If you have a confidential question regarding a blog article, please feel free to contact the article's author directly, or let us know if you would like for someone to contact you directly.

Attorney Spotlight

J. Christopher Coffman is a member of FBT focused on civil and criminal tax controversies. He has experience representing clients subject to IRS audits and federal criminal investigations before local and state taxing authorities and the U.S. Tax Court.