Multiemployer Potpourri

Transcription

1 Multiemployer Potpourri ABA Employee Benefits Committee Midwinter Meeting, February 2017 Dinah Leventhal Gregory Ossi Joseph Paller Bruce Perlin* *The opinions of Mr. Perlin are his alone and do not necessarily represent the views of the PBGC.

2 I. Withdrawal Liability Update Dinah Leventhal Gregory Ossi 2

3 A. Update on Successor Liability Last year: two cases of importance in the construction industry where there is a special definition of complete withdrawal requiring that an Employer continues to perform same type of work in same geographic area (or resumes such work within five years). This year: subsequent cases continue to develop what is required for notice element. 3

4 A. Update on Successor Liability Successor Liability applies where: Substantial continuity of business operations exists between successor and predecessor (requiring examination of a number of facts); and Successor had notice of liability. 4

5 A. Update on Successor Liability Tsareff v. ManWeb Servs., Inc., 794 F.3d 841 (7th Cir. 2015). District court had rejected the fund s successor liability theory, reasoning that the purchasing employer did not have adequate notice. Court of Appeals held that notice to the purchaser of contingent withdrawal liability was sufficient to satisfy the notice requirement for successor liability. 5

6 A. Update on Successor Liability Board of Trs. v. Full Circle Group, Inc., 826 F.3d 994 (7 th Cir. 2016). 7 th Cir. reversed district court s grant of er s MSJ on issue of notice, which had preceded Tsareff. 7 th Cir. here said that buyer may never have heard of WL or known that union PF was underfunded, but, knowing that he was dealing with a union PF, he was on notice of possibility of such liability. A lack of familiarity with the concept of WL cannot be an excuse; he had lawyers to advise him on FCG s legal obligations. 6

7 A. Update on Successor Liability Resilient Floor Covering Pension Trust Fund Board of Trustees v. Michael s Floor Covering, Inc., 801 F. 3d 1079 (9 th Cir. 2015). Found continued work element of ERISA 4203(b)(2) could be met by successor s work. Elaborated on continuity of business operations element as it applies in the MPPAA construction industry context. Remanded to district court on question of notice. 7

8 A. Update on Successor Liability Resilient Floor Covering Pension Trust Fund Board of Trustees v. Michael s Floor Covering, Inc., 2016 WL (N.D. Cal. Sept. 28, 2016). On remand, district court grants employer s MSJ on question of notice. Owner of employer attested that he had no knowledge of WL until PF sent assessment letter 18 months after co. opened. Knew predecessor had been a union shop but said did not know name of PF to which predecessor contributed and had no understanding of WL or that predecessor had potential liability. 8

9 A. Update on Successor Liability District court distinguished Tsareff v. Manweb Servs., Inc., 794 F.3d 841 (7 th Cir. 2015) Court noted that successor s owner there had discussed unfunded pension liabilities with predecessor and was aware of the concept of WL prior to the asset sale. Indeed contingent WL was explicitly addressed in the purchase agreement. 9

10 A. Update on Successor Liability District court compared to Heavenly Hana LLC v. Hotel Union Pension Plan, 2016 WL (N.D. Cal. Feb. 10, 2016) There alleged successor had previously participated in another ME plan and was well aware of potential for WL. Court found nonetheless that successor did not have req d notice because was not aware that PF was underfunded. 10

11 A. Update on Successor Liability So, does district court opinion on remand in Michael s suggest that the more careful a successor is about getting educated and obtaining advice, the more likely the successor is to be held liable for predecessor s WL? Facts there are somewhat unusual because there was not a sale of assets, just one business closed and another one started, but that would seem to be manipulable. Court emphasizes, however, that there was no evidence of sham. 11

12 B. Control Group Sun Capital III, LP v. New England Teamsters, 172 F. Supp. 3d 447 (D. Mass. 2016) On remand, the rewind: Portfolio company went bankrupt and defaulted on withdrawal liability Multi went after the owners of the company private equity funds (Sun Funds III and IV) Trade or business = investment plus 12

13 B. Control Group Two questions for the District court: Was Fund III a trade or business? Are the Funds in common control, i.e. have 80% ownership of the portfolio company? Yes, Fund III is a trade or business Yes, but not because of the statutory analysis but rather that the two Funds were a partnership in fact 13

14 B. Control Group How is that again? 14

15 B. Control Group The Sun Funds may not be a controlled group but the partnership in fact is part of the same controlled group as the portfolio company. Possible implications of this decision- Structuring of private equity investment? Chase away investors? Change in fees? 15

16 B. Control Group Ceco Concrete Constr. LLC v. Centennial State Carpenters Pension Trust, 821 F.3d 1250 (10 th Cir. 2016) After er s obligation to contribute to fund ceased, er s parent corp. acquired a non-union constr. co. which performed work for which contributions were previously req d Court held control group status is determined as of date control group triggers withdrawal 16

17 II. PBGC Update Bruce Perlin 17

18 PBGC ME Program Financials 2016 Net Position September 30, 2015 ($52.3 billion) 2016 Snapshot: Premium Income Investment Gain Assets Liabilities Net Position September 30, 2016 $282 million $143 million $2.2 billion ($61.0 billion) ($58.8 billion) 18

19 Probable Plans As of September 30, 2016, PBGC expects 168 multiemployer plans will exhaust plan assets and need financial assistance to pay guaranteed benefits and reasonable plan administrative expenses The present value of non-recoverable future financial assistance for these 168 plans is $61.0 billion, compared to $54.2 billion in 2015 The 168 plans in 2016 fall into three categories: 1. Plans currently receiving financial assistance (65 plans, $2.1B); 2. Plans that had terminated but had not yet begun receiving financial assistance from PBGC (63 plans, $2.0 B); and 3. Ongoing plans (not terminated) that PBGC expects will require financial assistance in the future (40 plans, $56.9 B) 19

20 Financial Assistance to Insolvent Multiemployer Plans Year PBGC Financial Assistance to Insolvent ME Plans ( ) Plans Receiving Financial Assistance (1) Total Amount of Financial Assistance (in thousands USD) , , , , , (2) 49 95, (2) 53 96, (2) , Sources: (1) A number of plans received financial assistance in more than one year. (2) 2012, 2014, 2016 figures rounded; total number of plans receiving assistance.

21 PBGC Multiemployer 5 Year Report Issued March, Report-2016.pdf Required by ERISA section 4022A(f)(1) to be issued every five years A review of the multiemployer program to determine the premiums needed to maintain current guarantee levels 21

22 PBGC Multiemployer 5 Year Report And whether the guarantee levels may be increased without increasing premiums It is more likely than not that PBGC s multiemployer fund will be exhausted by

23 PBGC Multiemployer 5 Year Report The high likelihood of insolvency and the current program net deficit indicate that current premium levels do not support an increase in the multiemployer guarantee level For either the 10 or 20 year projection period, premiums would need to be increased to avoid insolvency 23

24 MPRA Report Filed June 17, Report.pdf Required by section 131(c) of MPRA Analyzes whether current premium levels are sufficient for PBGC to meet multiemployer financial assistance obligations for 10 and 20 year periods beginning from

25 MPRA Report Under the current premium structure, PBGC will be unable to meet its average projected financial assistance obligations through 2025 or 2035 Projected premiums at the MPRA legislated rates, plus current assets and likely investment returns become insufficient to pay average financial assistance obligations 25

26 Projections Report Filed June 17, s-report-2015.pdf Required by ERISA section 4008 Illustrates the future financial condition of the single and multiemployer programs 26

27 Projections Report Single employer program likely to improve, but the multiemployer program remains likely to use up all of its assets by 2025 At the end of the 10 year projection period ending in 2025, the multiemployer fund assets are depleted in 57% of the scenarios By 2031, the risk rises to 95% and by 2035 the risk is 98% 27

28 III. Arbitration Procedures Bruce Perlin Gregory Ossi 28

29 Request for Approval of AAA 2013 Fee Schedule Notice of Pendency, 81 FR (Mar. 23, 2016) AAA submitted an application to PBGC seeking approval of their 2013 Fee Schedule 29

30 Withdrawal Liability Arbitrations MPPAA required that any dispute between a plan and an employer concerning a withdrawal liability determination be arbitrated MPPAA also required that PBGC promulgate procedures for withdrawal liability arbitrations PBGC promulgated regulations under section

31 Withdrawal Liability Arbitrations In lieu of the PBGC procedures, an arbitration may be conducted in accordance with alternative procedures approved by PBGC In 1985 and in 1986, PBGC approved the alternative procedures administered by the American Arbitration Association (AAA) 31

32 AAA 2013 Fee Schedule - Background The 1986 AAA Fee Schedule remained in place until 2013 when it was revised The 2013 Fee Schedule has a Standard Fee Schedule comprised of an Initial Filing Fee and a Final Fee for cases that proceed to their first hearing The 2013 Fee Schedule also offered a Flexible Fee Schedule that included an Initial Filing Fee, Proceed Fee, and Final Fee 32

33 AAA 2013 Fee Schedule Central States v. Bulk Transport Corp., 820 F.3d 884 (7 th Cir. 2016) Challenge to the AAA rules and fees for multiemployer withdrawal liability PBGC approval not required for fee increases Burden is on the arbitrating party to complain 33

34 AAA 2013 Fee Schedule Employer Options Pay fee and complain Pay old fee and complain Negotiate fee with AAA Other agreement with multi Whatever you do, do it timely! 34

35 IV. Construction Industry Reciprocity Litigation Joseph Paller 35

36 Reciprocity Agreements The reason for reciprocity agreements: Travelers temporarily working outside their home plans never vest in the DB plan where they work (fiveyear cliff vesting), and their families lose eligibility in home H&W plan The solution: money follows the man reciprocity: Established by reciprocity agreements created by international unions or plans, accepted by local plans, and enforceable via arbitration Contributions that are paid to plan where traveler temporarily works must be reciprocated to the home plan The participating plan acts as a mere conduit 36

37 Litigation Class actions and other suites filed when participating plans stop reciprocating contributions to home plans Justifications for refusing to reciprocate DB contributions: Under PPA, participating plans rehabilitation or funding improvement plans are prohibited from using surcharges to fund current or future benefits. ERISA 305(d)(1)(B), 305(e)(7)(E) Travelers are not participants in the outside DB plan because they can never vest in the outside plan, and therefore have no right to sue under ERISA 502(a) No reported cases address participating plans failures to reciprocate DC and H&W plan contributions 37

38 Class Actions Lehman v. Nelson, 59 Employee Benefits Cas. (BNA) 2208, 2014 U.S. Dist. LEXIS , 2014 WL (W.D. Wash. Sept. 11, 2014) (12(b) and 56(d) motions); 61 Employee Benefits Cas. (BNA) 1132, 2015 U.S. Dist. LEXIS , 2015 WL (W.D. Wash.April 24, 2015) (damages motion) Participant status: Plaintiff worked qualifying hours, thereby meeting the definition of Participant as set out in the Plan. Standing: Plaintiff is not suing to enforce the terms of the [IBEW/NECA] Reciprocity Agreements as a standalone contract but rather to enforce the terms of the Pension Plan, which in turn incorporates aspects of the Reciprocity Agreement. Plan violation found: Plan document mandates that plan reciprocate "all contributions received on behalf of the Employee. Appeal filed, Lehman v. Nelson, et al., No (9th Cir. June 10, 2015) 38

39 Class Actions Norris v. Mazzola, 61 Employee Benefits Cas. (BNA) 2506, 2016 U.S. Dist. LEXIS (N.D. Cal. April 20, 2016) (12(b) motion) Participant status and standing: Plaintiff worked qualifying hours, thereby meeting the definition of Participant in the Plan Participant s break in service capable of cure per ERISA s rule of parity. ERISA 203(b)(3)(D) Exhaustion: Complaint alleges facts potentially establishing that plaintiff complied with appeal procedures Cross motions for summary judgment heard in December No order on file. 39

40 Declaratory Relief Suit Kropke v. Dunbar, 2:16-cv-8753 MWF (FFMx) (C.D. Cal. filed Nov. 23, 2016) Brought by Trustees of Southern California IBEW/NECA Pension Trust against Trustees of Michigan Electrical Employees' Pension Fund Seeks declaration that PPA surcharge contributions need not be reciprocated to Michigan fund 40

41 Arbitration Trustees of U.A. Local 38 Defined Benefit Pension Plan v. Trustees of Plumbers & Pipe Fitters Nat'l Pension Fund, 2016 U.S. Dist. LEXIS 7356, aff d 2016 U.S. App. LEXIS (9th Cir. Cal., Dec. 23, 2016) (not for publication Arbitrator in international plan reciprocity arbitration did not exceed his authority or manifestly disregard ERISA in ruling that PPA surcharge contributions must be reciprocated by participating fund 41