The Pension Protection Act does not prohibit an employer from withdrawing from a multiemployer plan that is in critical status, according to a ruling by the 2nd U.S. Circuit Court of Appeals in New York.
The decision by a three-judge appellate panel upheld a ruling of the U.S. District Court in New York in favor of the employer, F.W. Honerkamp Co. Inc., New York, which was sued by Local 138 Pension Trust Fund, North Baldwin, N.Y.
“To our knowledge, no other court besides the district court in this action has considered whether the PPA (enacted in 2006) prohibits employers from withdrawing from multiemployer pension plans in critical status,” as defined under the PPA as less than 65% funded, Judge John M. Walker Jr. wrote in the Aug. 17 ruling for the appellate panel. “On this issue, the PPA itself is silent.”
Looking at congressional intent, Mr. Walker noted in “enacting the PPA, Congress also amended other portions of (the Employee Retirement Income Security Act of 1974) dealing with withdrawal and withdrawal liability without the slightest indication that it intended to abrogate employers' ability to withdraw from pension plans in critical status.”
In addition, the ruling said the Pension Benefit Guaranty Corp., “traditionally afforded substantial deference” in interpretation of pension statutes, adopted regulations for calculating employer liability for withdrawal from plans in critical status. “Like the PPA itself, these regulations say nothing about mandatory contributions under rehabilitation plans or prohibiting withdrawals,” the ruling states.
Honerkamp sought to withdraw Aug. 1, 2009, from the fund, after the pension fund reached critical status. The company asserted it would be liable only to pay withdrawal liability as calculated under the Multiemployer Pension Plan Amendments Act of 1980. The amount wasn't stated in the decision. Honerkamp's plan participants were covered under a collective bargaining agreement with the Bakery Drivers Local Union 802. In a new agreement, employees ratified an offer to create a 401(k) plan instead.
Trustees of the pension fund sued Honerkamp in February 2010, contending the enactment of the PPA prevented withdrawal and compelled the company to continue participating in the fund while contributing in accord with a rehabilitation plan trustees have to adopt in accordance with the PPA to restore a fund's financial health. Trustees appealed the district court ruling.
The appellate ruling also noted that before bringing the suit, the plan's trustees “believed that participating employers like Honerkamp had the option of withdrawing from the fund after it had entered critical status,” the ruling said. Trustees contemplated the possibility of voluntary withdrawals, noting, “employers would be unwilling to continue to participate in the (fund) if the cost of doing so were to exceed the cost of withdrawing.”
Company and fund officials couldn't be reached for comment.
Marc Hopkins, PBGC spokesman, said in an e-mail, “We are going to let the ruling speak for itself.”
Jason Surbey, spokesman for the Employee Benefits Security Administration of the Department of Labor, was unable to respond by press time.
