Seventh Circuit Decision Exposes Multiemployer Pension Plan Participating Employers Subject To Increased Withdrawal Liability Reassessments

On August 8, 2011, the United States Court of Appeals for the Seventh Circuit reached a significant determination in a withdrawal liability case that could leave employers subject to increased, revised withdrawal liability assessments based purely as a result of errors or recalculations performed by multiemployer plans.

The employer, DISA Industries, Inc. (“DISA”) was a contributing employer to the National Shopmen Pension Fund (the “Fund”) for two years. After two years, DISA closed its facility which created its only liability to contribute to the Fund, thereby creating a complete withdrawal. The Fund assessed withdrawal liability requiring DISA to pay $652/month for 20 years. This amount was calculated pursuant to 29 U.S.C. § 1399(c)(1)(C)(1)(I), which provides that withdrawal liability shall be calculated based upon the employer’s average number of contribution base units for the highest “3 consecutive plan years” during the 10 years preceding the plan year in which the withdrawal occurred. As DISA had only been a contributing for two years, the Fund had initially calculated a zero for the third year.

The Fund subsequently changed its interpretation of the statute and concluded that because the third year was a zero-hour year, only DISA’s two years of contributions should be averaged, without taking into account a zero-hour third year. Upon doing so, the Fund subsequently revised its withdrawal liability assessment and required DISA to pay $978/month.

DISA initially demanded arbitration but refused to pay the increased assessment while arbitration was pending. The Fund sued in the United States District Court for the District of Columbia to require DISA to pay while arbitration was pending, but the Court sided with DISA, holding that while the Fund’s interpretation should be resolved by arbitration, the “pay-now-arbitrate-later” rule should not apply because it could “subject employers to a pattern of oppressive behavior.” See Nat’l Shopmen Pension Fund v. DISA Indus., Inc., 583 F. Supp. 2d 95 (D.D.C. 2008).

After succeeding in the District of Columbia, DISA withdrew its arbitration demand, to which the Fund responded by notifying DISA that, because arbitration was no longer pending, the increased monthly payments were initially due. When DISA failed to make those increased payments, the Fund filed suit in the Northern District of Illinois, arguing that DISA was in default and therefore was required to pay the entire amount of assessed withdrawal liability pursuant to 29 U.S.C. § 1399(c)(5).

The Northern District of Illinois found for DISA, holding that ERISA’s arbitration requirements for withdrawal liability applied equally to both employers and plans and that, because the Fund had not objected to DISA’s withdrawal from arbitration or sought arbitration in its own right, DISA was not barred from defending against the merits of the Fund’s revised assessment. The Northern District of Illinois thereafter found for the DISA on the basis that the plain language of the statute required an averaging over three, rather than two years. See Natl Shopmen Pension Fund v. DISA Indus., Inc., No. 09 C 6983, 2010 U.S. Dist. LEXIS 27829, 2010 WL 1251446 (N.D. Ill. Mar. 24, 2010).

The Seventh Circuit reversed. The Court’s primary basis for reversal was its conclusion that DISA had, in fact, waived its right to challenge the reassessment. However, to reach this conclusion, the Court first had to conclude that the Fund had the right to make a revised withdrawal liability assessment. In so doing, the Seventh Circuit cited to PBGC Opinion Letter 90-2, in which the PBGC concluded that “[i]f the employer contests the plan’s right to revise its original assessment or issue a second assessment, this dispute, like other disputes involving withdrawal liability, must be resolved first through arbitration and then, if necessary, through the courts.” While acknowledging that an opinion letter is due no deference, the Seventh Circuit nonetheless found its reasoning persuasive in light of the strong preference of the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”) for collecting withdrawal liability in a manner that protects the solvency of multiemployer plans. The Seventh Circuit also found guidance in Masters, Mates & Pilots Pension Plan v. UXB Corp., 900 F.2d 727 (4th Cir. 1990), in which the Fourth Circuit had permitted a revised assessment where there had been an undisputed error in calculation. The Seventh Circuit thereby held that “a fund must be able to revise an assessment of withdrawal liability, within a reasonable period of time, if it discovers that it has undercharged an employer.”

Upon concluding that the Fund had the right to revise its previous assessment, the Court then held that the DISA had, in fact, waived its right to challenge its revised assessment by withdrawing its arbitration demand. The Seventh Circuit specifically held that the District Court erred in holding that because the Fund had not objected to DISA’s withdrawal its arbitration demand or demanded arbitration itself, that DISA preserved its right to defend the assessment in court.

Having concluded that DISA had waived its right to defend the revised assessment, the Court deemed it unnecessary to reach the question of the Fund’s interpretation of the statute. However, the Court did note that the PBGC supported DISA’s interpretation, which would have required the Fund to factor in a zero for the third year.

The lesson of this case for employers contributing into a multiemployer pension plan is that, in the event of a withdrawal – whether complete or partial – employers may face the risk of revised withdrawal liability assessments, even in the event that the reason for the revision is an error in calculation or a revised legal interpretation by the plan. Employers must treat all revised assessments as initial assessments and be prepared to arbitrate the revision or else face the risk of being required to pay the revised assessment without any defense (or, even worse, being held in default and being required to immediately pay the full amount of the revised assessment).

The case is Nat’l Shopmen Pension Fund v. DISA Indus., Inc., 653 F.3d 573 (7th Cir. 2011).