A large construction company with many subsidiaries
triggered withdrawal liability of almost $1 million under controlled group
liability principles in the Multiemployer Pension Plan Amendment
Act (“MPPAA”) (link is external) when it purchased a nonunion
construction company.
In the view of the federal 10th Circuit
Court of Appeals (CO, KS, NM, OK, UT, WY) in Ceco Concrete Constr., LLC. v. Centennial State Carpenters
Pension Trust, (link is external) the purchased subsidiary
performed work of the same type for which another subsidiary had previously
made (but had ceased making) pension contributions to a multiemployer pension
plan. This triggered withdrawal liability (link is
external) under the MPPAA’s building and construction
industry rules.
Company Lets CBA Expire, Then Parent Buys Nonunion
Competitor
Construction employers are treated more generously than
most other employers under the MPPAA. For most employers, if
they cease to have an obligation to contribute to a plan or cease covered operations,
withdrawal liability is triggered. Building and construction industry
employers do not trigger withdrawal liability when they cease having an
obligation to contribute unless, after ceasing the contribution obligation, the
employer either continues covered operations or resumes them within five years.
Ceco Concrete Construction, LLC, decided it could no
longer compete effectively as a union contractor against nonunion
contractors. Ceco had a collective bargaining agreement that required it
to make contributions to the Centennial State Carpenters Pension Trust in
Colorado, and it decided to allow its collective bargaining agreement with the
carpenters’ union to expire effective May 1, 2010. Approximately six
months later, on October 1, 2010, Ceco’s parent company, Heico Holdings, Inc.,
purchased CFA, a nonunion construction company that performs the same type of
construction work that Ceco did in the same market. In fact, Ceco and CFA
had been competitors. Heico, Ceco and CFA are under “common control” and
are a common-control group.
Appeals Court Affirms Withdrawal Liability
The pension fund assessed withdrawal liability.
Ceco contested the assessment and argued it could not be held liable for
withdrawal liability, because once it ceased performing work for which
contributions were required, it never resumed such work. The pension fund
responded that Ceco was liable, because the work of CFA (the
subsequently-acquired subsidiary) established the common-control group, which
is the “employer” under the MPPAA, started to perform work for which
contributions were required within a five-year period.
Ceco’s response to this argument was that only parties
under common control on the date the obligation to contribute ceased
could incur liability under the building and construction industry rules in the
MPPAA. Previous court decisions on this issue supported Ceco’s interpretation,
and both an arbitrator and the federal district court for Colorado agreed with
Ceco, finding the assessment of withdrawal liability improper.
Nevertheless, the appeals court disagreed. It found
that, under the law’s building and construction
industry rules, “withdrawal liability may be assessed against all
entities in the common control group at the time of continuation or resumption
of covered work.” (Emphasis added.) Therefore, Ceco, its
holding company, and all other members of the common control group were liable
for the withdrawal liability.
The court recognized that its ruling conflicts with
other jurisdictions, such as the 7th Circuit Court of
Appeals and various federal district courts. It may eventually
require a U.S. Supreme Court decision to resolve this conflict within the
federal courts.
Bottom Line
Construction employers that are acquiring
other entities should scrutinize potential multiemployer pension plan
withdrawal liability issues which may arise through the operation of their
acquired companies.
Source: AGC
of America
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