The U.S. Supreme Court has resolved how companies should calculate their amortized pension liabilities when they leave a multiemployer pension plan.
In the case of the Milwaukee Brewery Workers' Pension Plan vs. Joseph Schlitz Brewing Co., the high court unanimously decided late last month that companies belonging to multiemployer plans do not have to pay interest on the multiemployer pension liability until the year after they leave the pension plan.
"It puts the installment option back as a viable alternative," said Susan Katz Hoffman, partner at Pepper, Hamilton & Sheetz, Philadelphia, who has been representing several employers who were waiting for this decision.
In mid-1981, the Joseph Schlitz Brewing Co., which had belonged to the Milwaukee Brewers' Association, decided to leave the association because it felt other employers in the association were too agreeable to union demands.
The Milwaukee Brewery Pension Plan was underfunded by $111 million and, in complying with the Multiemployer Pension Plan Amendments Act of 1980, Schlitz had agreed to pay its roughly $26 million share of the unfunded liability when it withdrew from the association.
Schlitz had the choice of either paying the $26 million in a lump sum to the pension plan or to amortize it. Schlitz chose to amortize the payment, but there was disagreement between the plan and the company about when interest would begin to accrue on the amortized payment. Schlitz thought the interest payment would be about $880,331 because, Schlitz officials argued, interest should accrue in 1982. Pension plan officials argued the payment would be about $3.5 million, with interest accruing for the year Schlitz withdrew.
But in writing for the court, Justice Stephen G. Breyer agreed with the 7th U.S. Circuit Court of Appeals' decision and said that in general, people don't pay interest on a debt until the principal of the debt is outstanding.