Court Expands Withdrawal Liability Rules for Construction Employers

The federal appellate court’s opinion turned on when to assess common control among employers.

The 10th U.S. Circuit Court of Appeals has found that a construction employer owes multiemployer plan withdrawal liability even though a non-union construction employer continued its operations within five years after the union employer exited the plan. 

The case involves Ceco Concrete Construction, LLC, which withdrew from the Centennial State Carpenters Pension Trust as of May 1, 2010. Ceco’s owner Heico Holdings, Inc. acquired non-union construction company CFA in October 2010. CFA performed the same type of work that Ceco did.

The court noted that under the Multiemployer Pension Plan Amendment Act (MPPAA), construction employers are treated more generously than other employers when it comes to withdrawal liability. For most employers contributing to a multiemployer plan, withdrawal liability arises when the employer stops its duty to contribute or ceases covered operations, but for a construction employer withdrawal liability does not arise unless it continues covered operations or resumes them within five years. 

“This generous treatment accounts for the temporary nature of construction projects and allows construction employers to stop contributing to pension plans in certain circumstances without incurring withdrawal liability,” the court wrote in its opinion.

The parties in the lawsuit stipulate that CFA resumed covered work within five years of the May 1, 2010, cessation of Ceco, but CFA was not under common control with Heico or Ceco at the time of cessation.  The question before the court is whether the plan can impose withdrawal liability against Ceco as a result of CFA’s resumed work.  

Both an arbitrator and a lower court ruled that withdrawal liability can be assessed only against entities that are under common control on the date the obligation to contribute to the plan ceases. They concluded the plan could not assess withdrawal liability on Ceco because CFA was not under common control with Heico and Ceco when Ceco’s obligation ceased.   

However, the 10th Circuit disagreed and remanded the lower court’s decision. The appellate court held that hold that withdrawal liability may be assessed against all entities in the common-control group at the time of continuation or resumption of covered work. It concluded the plan was permitted to assess withdrawal liability against Ceco because Ceco was under common control with CFA when CFA resumed covered work.

The 10th Circuit also found the definition of “employer” under the MPPAA includes present and future compositions of the common-control group, and the language of the MPPAA indicates the common control must be determined when the common-control group triggers a withdrawal, which occurs when covered work resumes within five years of ceasing to contribute to the pension plan. “The statute defines ‘employer’ in the present and future tenses, not in the past tense,” the court wrote in its opinion. “The MPPAA’s plain language indicates common control must be determined at the time the group resumes covered work—not at the time of cessation.”

The court also noted, “Determining common control at the time the obligation to contribute ceases would provide an end run around MPPAA withdrawal liability. Like the common-control group here, a group would avoid liability by terminating its obligation to contribute and then acquiring a nonunion business that resumes covered work. The common-control group would then escape any liability because the newly acquired entity would not have been under common control on the date of cessation. This would run contrary to the MPPAA’s aim of protecting pension funds from the adverse effects of employer withdrawals and of imposing withdrawal liability on common-control groups regardless of corporate form.”

The 10th Circuit’s opinion is here.

Source: Plan Sponsor