Withdrawal Liability Claims: What Employers Should Do to Protect Their Interests | Practical Law

Withdrawal Liability Claims: What Employers Should Do to Protect Their Interests | Practical Law

This Update provides a brief overview of the key procedural issues in an employer's response to an assessment of withdrawal liability from a multiemployer pension plan under the Employee Retirement Income Security Act of 1974 (ERISA).

Withdrawal Liability Claims: What Employers Should Do to Protect Their Interests

Practical Law Legal Update 0-587-1465 (Approx. 3 pages)

Withdrawal Liability Claims: What Employers Should Do to Protect Their Interests

by Practical Law Employee Benefits & Executive Compensation
Published on 07 Nov 2014 • USA (National/Federal)
This Update provides a brief overview of the key procedural issues in an employer's response to an assessment of withdrawal liability from a multiemployer pension plan under the Employee Retirement Income Security Act of 1974 (ERISA).
Withdrawal liability from a multiemployer defined benefit plan can be a major hidden liability in many corporate transactions. Employers that withdraw from a multiemployer pension plan are liable for a portion of the plan's unfunded vested liabilities and must pay withdrawal liability to the plan.
Withdrawal liability is essentially an exit fee charged to an employer with a unionized workforce participating in a multiemployer pension plan. After an employer's withdrawal, a multiemployer pension plan must:
  • Notify the employer of the liability and schedule for payment.
  • Demand payment in accordance with the schedule through an assessment or demand.
To challenge an assessment of withdrawal liability, the employer must go through arbitration. However, there are many procedural steps that an employer must take before initiating arbitration.
This Update provides a brief overview of the key steps in the process of responding to an assessment of withdrawal liability and initiating arbitration. Practical Law, Lee Polk and Mark Trapp of Epstein Becker & Green, P.C. are presenting a free 60-minute webinar in which the presenters provide a roadmap and best practices to follow to protect employers' interests when a withdrawal liability assessment arrives.
Register now for the Webinar: Withdrawal Liability Claims: What Employers Should Do to Protect Their Interests on Wednesday, November 12, 2014, from 1:00 to 2:00 p.m. ET.

Responding to an Assessment of Withdrawal Liability

Responding to an assessment of withdrawal liability is a complicated process. In responding to an assessment of withdrawal liability, an employer should consider:
  • Preserving its right to arbitrate any unsolved disputes.
  • The initial steps it should take.
  • What information to gather to prepare the response.
  • Consulting with the appropriate professionals to assist with the response.

Preparing to Challenge the Assessment

If the employer does not agree with the assessment of withdrawal liability, it may challenge it through arbitration. While the employer prepares to challenge the assessment of withdrawal liability through arbitration, it must:
  • Still make the interim payments of the assessed amounts.
  • Consider the demand and payment schedule when making the payments.
If the employer does not adhere to the demand and payment schedule, there can be serious consequences including default and the plan's acceleration of the entire amount due plus accrued interest.

Request for Review of the Assessment

A dispute between an employer and the plan sponsor of a multiemployer plan concerning a withdrawal liability determination must be resolved through arbitration. To initiate arbitration, an employer must first request review of the plan's assessment by sending a letter requesting review to the plan. In this request, employers should consider both the:
  • Timing of the request for review.
  • Contents of the request for review.

Initiating Arbitration

An arbitration should be initiated if the employer does not:
  • Agree with the request for review of the plan's assessment.
  • Receive a response to its request for review of the plan's assessment.
An arbitration is initiated when one of the parties to a dispute regarding a withdrawal liability assessment serves the other party with a notice of initiation. Employers should consider:
  • The deadline to initiate arbitration.
  • Establishing timeliness.
  • The contents of the notice of initiation of arbitration.
  • Payment of filing fees.
For more information, see Practice Notes, Responding to an Assessment of Withdrawal Liability from a Multiemployer Pension Plan and Multiemployer Pension Plans.