Withdrawal liability: Why employers can’t sue trustees

For employers who cease to contribute to a multiemployer defined benefit pension plan, withdrawal liability is becoming more and more common. When a pension fund is underfunded, the cessation of the contribution obligation can trigger the obligation to pay off the allocated portion of that unfunded liability which can be substantial. When I am working with employers who are addressing withdrawal liability, I am frequently asked whether the employer can sue the fund or the trustee for causing the unfunded liability. The short answer is no, but a recent case lays out very clearly why that answer is no.

In DiGeronimo Aggregates, LLC v. Zelma, the Sixth Circuit Court of Appeals recently considered a case where a withdrawing employer filed a complaint against the trustees of the multiemployer pension fund for negligent management of the plan that caused the underfunding.  The District Court dismissed the complaint and the Sixth Circuit affirmed. The employer sued using ERISA Section 4301, which provides that persons, including employers, can bring a cause of action for appropriate legal or equitable relief. However, the Sixth circuit found that this section confers no actual substantive rights. It only provides who may potentially enforce the sections of ERISA.

The Court went on to determine that causes of action for “negligent management” of plan assets already have a specified remedy in ERISA. When it comes to bringing claims of this nature, ERISA specifies that claims can be brought by participants and beneficiaries, but makes no mention of employers. The Court reasoned that had Congress intended to give employers this right, they could have easily included them as parties capable of bringing an action. Since they are not included, they must be assumed to be specifically excluded. Since Congress did not include them, contributing employers must not have standing to bring a claim for mismanagement of plan assets.

This decision is not new or novel. It merely reaffirms a long-held rationale that contributing employers lack standing to argue out of withdrawal liability claims by suing plan trustees. A more effective way of dealing with withdrawal liability is to plan for it before it occurs. If an employer is considering any transaction — be it a sale, merger, decertification or closing of a facility that will potentially halt contributions to a multiemployer pension fund — withdrawal liability must be a priority concern. Dealing with withdrawal liability BEFORE a withdrawal is much easier than defending withdrawal liability claims after a withdrawal occurs. Make sure to ask your professionals about withdrawal liability in advance and avoid the surprise.

Keith R. McMurdy is a partner with Fox Rothschild focusing on labor and employment issues; he can be reached at kmcmurdy@foxrothschild.com or (212) 878-7919.

Source: Employee Benefit Adviser