Under very specific conditions, contractors are exempt from withdrawal liability.
ERISA (the Employee Retirement Income Security Act of 1974) stipulates that employers who withdraw from a multi-employer pension plan remain liable for any shortfall in the funding of the plan.
According to an article by Jeffrey Herman in Nuts &Bolts Construction Law Blog, this means that an employer “must pay withdrawal liability based on its share of unfunded vested liabilities under that plan.”
“A multiemployer pension plan covers the workers of two or more unrelated companies pursuant to a collective bargaining agreement (CBA).” Section 4203 of the ERISA provisions is designed to prevent employers from avoiding their funding obligations by shifting operations to related companies that are not covered under their plan.
Mr. Herman notes that even if employers withdraw from a CBA in good faith, their withdrawal liability obligation remains. This can be very expensive.
“Withdrawing employers in the ‘building and construction industry,’ however, can be completely exempt from liability, provided three requirements are met”—
- 85% of a company’s employees are covered under the pension plan
- The plan covers employees who actually work in the construction industry. The definition of “construction industry” is subject to interpretation but as a general rule, under this statute, it means employees who work on construction sites and are actually engaged in the building process.
- “The employer does not continue or resume within five years any work in the jurisdiction of the CBA of the type for which contributions were previously required (or if the employer does resume such work, it also resumes making contributions to the plan.)”
This exemption is very specific and narrow. The burden is on the employer to demonstrate it should not be required to pay withdrawal liability.
Mr. Herman recommends what should be obvious—consult an attorney and carefully analyze whether “withdrawing from a multiemployer plan” is appropriate.
The building and construction industry exemption to withdrawal liability, Jeffrey Herman, Nuts & Bolts Construction Law Blog, Oct. 16, 2017.