In this issue of Proskauer's ERISA Litigation Newsletter, we review a recent ruling by the Tenth Circuit Court of Appeals concerning the application of controlled group principles to the building and construction industry exemption to withdrawal liability. As discussed below, pension plans and employers in the building and construction industry should consider carefully the implications of the Tenth Circuit's ruling. This month's Rulings, Filings, and Settlements of Interest reviews court rulings on incorrectly addressed COBRA notices, the HHS, DOL and Treasury Department's Joint Release of New Summary of Benefits and Coverage Templates and Accompanying Documents, and an IRS information letter on California waiting time penalties.
VIEW FROM PROSKAUER: BUILDING AND CONSTRUCTION INDUSTRY EMPLOYERS AND PENSION PLANS TAKE NOTEPOTENTIAL UNFORESEEN ASSESSMENT OF WITHDRAWAL LIABILITY*
By Anthony S. Cacace
Employers in the building and construction industry enjoy the benefit of unique rules that considerably limit the circumstances under which they are required to pay withdrawal liability following the cessation of their obligation to make contributions to a multiemployer pension plan. Whereas most employers automatically face withdrawal liability assessments when they cease to have the obligation to make pension plan contributions, construction industry employers need not pay withdrawal liability if they discontinue "covered work" in the jurisdiction of the collective bargaining agreement under which they are required to make contributions to the pension plan for at least five years.
A recent ruling by the U.S. Court of Appeals for the Tenth Circuit, Ceco Concrete Construction, LLC v. Centennial State Carpenters Pension Trust, et al. (10th Cir. May 3, 2016) (86 PBD, 5/4/16), illustrates, however, that construction industry employers must be mindful of the activities of companies within their "controlled group," which could potentially expose them to withdrawal liability that they would otherwise escape.
The Building and Construction Industry Exception to Withdrawal Liability
Withdrawal liability under Section 4203(a) of the Employee Retirement Income Security Act is triggered upon a "complete withdrawal" from a multiemployer pension plan. A complete withdrawal under Section 4203(a) of ERISA occurs when the employer permanently ceases to have an obligation to contribute to the plan, or permanently ceases all covered operations under the plan.
For employers in the building and construction industry, however, Section 4203(b)(2) of ERISA provides an exception, pursuant to which a complete withdrawal occurs only when an employer: (1) "ceases to have an obligation to contribute under the plan," and (2) either (a) "continues to perform work in the jurisdiction of the collective bargaining agreement of the type for which contributions were previously required" or (b) "resumes such work within 5 years after the date on which the obligation to contribute under the plan ceases, and does not renew the obligation at the time of the resumption."
Irrespective of the industry in which an employer is engaged, ERISA defines the term "employer," which extends not only to the entity that executes the agreement requiring contributions to be made to the plan, but also all "trades or businesses" under "common control" with that entity. See Section 4001(b) of ERISA. This is known as the employer's "controlled group." By virtue of this definition, companies can become liable for withdrawal liability even if they never directly entered into a collective bargaining obligation to contribute to the plan.
And, as the recent Tenth Circuit ruling demonstrates, a construction industry employer's ability to withdraw from a plan without incurring withdrawal liability obligations can similarly be impacted by the...