Court Rules Firms Can’t Skirt Pension Withdrawal Fee

A court has ruled that a group of construction-related companies can’t leave their multiemployer pension plan without paying the withdrawal liability.

The US Court of Appeals for the Seventh Circuit upheld a district court ruling that said the now-defunct T&W Edmier Corp., and its affiliated entities, must pay a $640,900 withdrawal liability, plus interest, liquidated damages, attorneys’ fees, and costs for withdrawing from the Suburban Teamsters of Northern Illinois Pension Fund.

According to court documents, T&W Edmier stopped making its pension contributions when it went out of business in 2014. This led the pension fund to assess a withdrawal liability of $640,900. However, the pension fund was ignored when it sought to collect the payment by mailing a notice of the withdrawal liability to T&W and several affiliated entities. As a result, the trustees of the Suburban Teamsters of Northern Illinois Pension Fund sued to collect payment, and a district court ordered T&W, along with several other individuals and entities under common control, to pay the withdrawal liability.

The multiemployer pension plan amendments to the Employee Retirement Income Security Act (ERISA) require a covered plan to assess a withdrawal liability against a withdrawing employer. The purpose of a withdrawal liability is to prevent the financial burden of employees’ vested pension benefits from shifting to other employers in the multi-employer plan.

Ignoring the pension fund’s requests for payment ended up having significant legal consequences for T&W and the other defendants. The law requires all withdrawal liability disputes to be resolved through arbitration. If an employer fails to arbitrate, the plan can immediately sue to collect the entire amount of withdrawal liability, and the employer forfeits any defenses it could have presented to the arbitrator. The district court’s decision to rule against T&W was based on this legal framework.

T&W sought to vacate the district court’s ruling by arguing that its due process rights were violated because, when the pension fund initiated collection of the withdrawal liability, it mailed the notice to some of the defendants, but not all of them. The firm’s lawyers argued that the Supreme Court’s 1950 decision in Mullane v. Central Hanover Bank & Trust Co. required the pension fund to serve the withdrawal liability notice to each of them.

But the Seventh Circuit court shot down this defense.

“This contention misses the mark,” said the court in its ruling. “In no way, shape, or form did any due process violation occur here. The defendants who received—but chose to ignore—the notice of withdrawal liability had every opportunity to arbitrate and yet failed to do so, resulting, by operation of ERISA, in a waiver of all defenses to withdrawal liability.”

The court also said that for the defendants who did not receive the notice of withdrawal liability, the district court provided them “a full and fair opportunity” to litigate their liability as members of a controlled group.