Ohio Construction Company Cleared of $5M Pension Liability Claim

Stevens Engineers & Constructors, Inc. doesn’t owe withdrawal liability to the Iron Workers Local 17 Pension Fund because the work identified by the union did not fall with the jurisdiction of their previous collective bargaining agreement.

The decision is a blow for the distressed Iron Workers pension fund, which is severely underfunded with a deficit of over $170 million. The Cleveland-based pension plan was the first to receive approval from the Treasury Department to cut participant benefits.

An employer that participates in a multi-employer pension plan and withdraws from the plan is liable for its share of any underfunded benefits, a scheme also known as withdrawal liability. A special rule applies to employers in the construction industry. These employers are not subject to liability if they completely withdraw from work in the jurisdiction of the CBA of the type for which contributions were previously required.

The parties’ dispute started when the union assessed pension liability against Stevens, claiming that certain activities in a construction project that commenced after the company withdrew from the plan, involved work within the jurisdiction of their previous CBA.

The three-judge panel said the power rigging work, which the fund disputed, was not work within the jurisdiction of the CBA because the agreement allowed Stevens to assign this work to another union. The fund could not use the power rigging work as a basis for assessing liability because the job’s assignment to certain workers meant it was within their jurisdiction rather than the iron workers.

Matt Austin owns Austin Legal, LLC, a boutique law firm based in Ohio that limits its representation to employers dealing with labor, employment, and OSHA matters. You can reach Matt by calling him at (614) 843-3041 or emailing him at Matt@MattAustinLaborLaw.com.

Court Rules that Company Owes $1.7 Million for Union-Mandated Pension Plan Withdrawal

Pension withdrawal liability continues to be a major, penal factor to unionized companies. A rubber company recently argued that it should not be subject to a $1.7 million withdrawal liability assessment because the withdrawal from a multi-employer pension plan was union-mandated. The Company argued that this withdrawal liability should have been calculated using the Pension Benefit Guaranty Corporation’s (PBGC’s) alternate method for calculating withdrawal liability, which would have reduced its liability to $312,000. The Company lost this argument.

The Company unsuccessfully cited a 1991 PBGC report addressing union-mandated withdrawals. A union-mandated withdrawal occurs when: (1) a union “voluntarily disclaims” its status representing a group of employees, and (2) the pension plan refuses to accept the employer’s continued contributions. The report presented three methods for calculating liability in these instances. However, Congress has not yet acted on the report or amended ERISA to account for union-mandated withdrawals.

The Court found the Company’s insistence that the pension withdrawal was union-mandated unpersuasive. It explained that ERISA has a “comprehensive scheme” for determining withdrawal liability. ERISA includes several specific exceptions that reduce withdrawal liability in certain circumstances, but unfortunately, union-mandated withdrawal is not one of these exceptions.

So, at least for the time being, when a union disclaims interests in representing the workers – essentially kicking the employees out of the union – companies are on the hook to pay withdrawal liability even when the company desires its employees to remain in the union. This ruling opens the door for corruption. Take, for example, a small company whose employees collectively pay $20,000 per year in union dues. But, that company owes $1,000,000 in withdrawal liability. A union is allowed to walk away from representing the workers because it is not cost-effective for the union to represent a small unit with minimal dues revenue, but the company receives no relief from the million-dollar withdrawal liability. In legalese, that’s inequitable. In layman’s terms, that’s not fair.

Matt Austin is a lawyer based in the Columbus, Ohio office of Roetzel & Andress, LPA who limits his practice to representing employers dealing with labor, employment, and OSHA matters. You can call Matt at (614) 723-2010 or email him at maustin@ralaw.com.

REIT Not Subject to Unfunded Pension Withdrawal Liability

Finally, some good news about getting out from beneath suffocating unfunded pension liability – but only if you own a REIT. A real estate holding company was not liable for a commonly owned employer’s $1.8 million withdrawal liability judgment because the company’s primary purpose during the relevant time period was personal rather than profit-seeking.

Specifically, the holding company, jointly owned by the sole owner of the withdrawing employer and his ex-wife, had the primary purpose of managing personal real estate investments, including property intended to be occupied by the owners’ daughter. The owners performed brief background checks on tenants, negotiated leases by using standard forms purchased from an office supply store, and listed properties for sale with real estate brokers. Because there was insufficient evidence that any of these activities required a significant time commitment from the owners, the court determined that the company’s primary purpose was personal, rather than profit-seeking, and that such activities were not done with sufficient continuity and regularity.