Mar 31, 2015
The United States Supreme Court has refused to review a Seventh Circuit decision that commonly controlled entities were jointly and severally liable for withdrawal liability incurred upon one of the related entities withdrawal from a multiemployer pension plan. In the case Central States, Se. and Sw. Areas Pension Fund v. CLP Venture LLC, Nos. 13-3010, 13-3776 (7th Cir. 2014), cert. den.135 S. Ct. 964 (S. Ct. 2015), the common owner held, at the time of withdrawal, just a 73% ownership interest in the parent of the withdrawing employer. The withdrawal liability statutes under ERISA are clear that withdrawal liability extends to all trades or business under common control with the withdrawing employer. Generally, ERISA considers 80% or more ownership to be common control.
However, in this case, the controlling shareholder had owned 65% of the parent of the withdrawing employer and had entered into a stock redemption agreement with the minority shareholder to buy back all 35% of the minority shareholder’s shares over an extended period of time with the shares held in escrow until installment payments were made. The redemption agreement had terms that effectively granted the majority shareholder both control of the escrowed shares and 100% voting interest. Although ownership was below the 80% common ownership threshold at the time of withdrawal, the majority owner was effectively in control of the parent of the withdrawing employer. Consequently, the court found the parent jointly and severally liable for the withdrawing employer’s $1.7 million in assessed withdrawal liability.
What this means to you – if you are currently obligated to contribute to a multiemployer pension plan under a collective bargaining agreement, you should be aware of any potential withdrawal liability obligation and understand that any entities under common control of the contributing employer could be jointly and severally liable for that obligation. Even if the multiemployer pension plan to which you are obligated to contribute is not underfunded at the level of yellow or red status, it still may be underfunded on a termination basis (which is what withdrawal liability is computed on). If you have multiple entities with common ownership, you should assess what entities would be considered a single employer and jointly and severally liable for any withdrawal liability. If you are considering a change in ownership, you should consult counsel on the potential change’s effect on common control for purposes of withdrawal liability collection and assessment.