Pension Lawyers For Employees Benefit Plans – Withdrawal Liability

ERISA governs employer and individual retirement plans which many employees in the private sector rely on for a secure financial future. Retirement plans are usually an employee’s main investment strategy, therefore, withdrawals from these plans can severely impact employees’ retirement goals.

Types of ERISA Withdrawals

There are two types of withdrawals: Complete and Partial.

Complete Withdrawal
This occurs when an employer completely pauses contributions to a plan. There are unique withdrawal liability rules that apply to specific industries.

If all or the vast majority of employers completely leave a plan, this is known as a mass withdrawal. ERISA has created rules to prevent employers who gradually reduce contributions over time in an effort to escape withdrawal penalties. These are known as partial withdrawals which could potentially trigger liabilities.

Partial Withdrawal
A partial withdrawal scenario involves either:

• 1. A 70% or greater reduction of the employer’s “contribution base units” (CBUs), or
• 2. Partial termination of the employer’s contribution.

CBUs measure an employer’s contribution using quantitative methods and a formula in ERISA that measures an employer’s CBUs over a period of time.

The other portion of a partial withdrawal is the “partial cessation,” which involves circumstances where employers may have expired agreements or stop contributions in facilities where employees continue to work.

How Pension Lawyers Can Help with Withdrawal Liability

Fortunately, we have decades of experience with ERISA compliance, employee benefits, and withdrawal liability.

We can add value to your business by:

• 1. Advising on exemptions in the law for certain industries like construction, entertainment, transit, and fast food.
• 2. Determining which actions are considered to be withdrawals and which ones are not withdrawals. For example, certain circumstances can lead to what appear to be withdrawals but actually are not. A few simple examples of these are employee strikes and lockouts that would cause an employer to suspend plan contributions. Other corporate restructuring events like mergers and acquisitions, or employer stock sales are not counted as withdrawals.
• 3. Calculating withdrawal liability amounts and payment plans for affected employers.
• 4. Guiding you through the intricacies of arbitration between an employer and a multiemployer plan. Since legal proceedings can be costly and time-consuming; arbitration can be a great alternative. We can walk you through this process to save you time and money!

It’s also important to be aware of the Multiemployer Pension Plan Amendments Act (MPPAA) which was passed in 1980. This important act was created as an amendment to the Employee Retirement and Income Security Act, (ERISA) to protect employees who contribute to retirement plans.

This forces employers who want to pull out of defined benefit plans, like pensions, to pay a percentage of the plan’s unfunded vested benefits. This issue has become worse since 2008 due to the financial crisis, along with extremely low-interest rates, declining plan participation and a large number of retirees living longer.

Besides consulting legal counsel, it could be wise to work with an actuary to ensure how pulling out of a pension would impact your company’s bottom line. An actuary and a competent attorney could work together to determine the best course of action.

Important Relevant Withdrawal Liability Laws
Besides learning about various calculations, withdrawal types and the MPPAA, it’s also wise to learn more about relevant withdrawal liability laws.

Sale of Assets Exception
While certain sales of assets, like mergers and stock sales won’t trigger a withdrawal, there are more related rules which might be met.

• 1. The sale must be a bona fide arm’s length transaction between “unrelated parties.”
• 2. The buyer must commit to contributing the same number of contribution base units or CBUs as the previous seller did.
• 3. The buyer must bond, or place in escrow, an amount equal to one year of the seller’s contributions before the last day of the plan year of the sale.
• 4. The sale contract must state that the seller will be secondarily liable if the buyer exits the plan in the next five years.

Contact an ERISA Law Firm
ERISA withdrawals occur for an array of reasons, but the significance of these events differ depending on the circumstance. It is crucial to understand withdrawal liabilities and penalties and speak with an experienced employee benefits attorney who is knowledgeable with ERISA laws. Pension Lawyers in Los Angeles can help you or your business navigate the complexities of employee plan withdrawals.