Employers that participate in multiemployer fringe benefit plans (i.e., a plan providing benefits for union employees into which more than one employer contributes) typically understand the basic costs of doing so. They know they are required to timely deposit with the plan's trust fund the contributions required by their collective bargaining agreements ("CBAs") (e.g., dollars per hour, shift, week or other industry work unit). They also understand that if they do not, they may face an unfair labor practice charge from the union or a lawsuit from the fringe benefit plan seeking the unpaid amounts.
However, employers could also face types and amounts of liability they never considered when they agreed to participate in their industry's fringe benefit plans. Employers that recognize the potential liabilities can take steps to avoid or minimize them. Unfortunately, all too often we counsel employers who first learn about these additional liabilities only when a fringe benefit plan demands the employer pay the liability.
The following are some of the more common liabilities that can be asserted by a fringe benefit plan.
Fiduciary Liability for Unpaid Contributions – Fringe benefit plan trust agreements often include language stating that contributions required under a CBA become plan assets when the amounts are due, even if not paid. Some plans then allege that because under ERISA, any person that exercises authority or control over the disposition of plan assets is a fiduciary, the employer's officers and directors are personally liable as fiduciaries for any unpaid contributions since they had control over the employer's assets (now plan assets to the extent of the unpaid amounts). Plans claim that the officer/director fiduciaries owed a duty to make sure the "plan assets" were paid to the plan.
Expanded Contributions Due for Services – Sometimes a union employee may perform work clearly in the trade jurisdiction of the CBA but also some work that is not covered work at all. Sometimes it is not clear whether certain services are or are not trade work and an employer will only contribute for what it believes is trade jurisdiction work. Whether an employer owes fringe benefit plan contributions for work performed by union employees that is clearly outside the trade jurisdiction or that the employer believes is outside the jurisdiction, depends on the specific language in the CBA and possibly in the plan's trust agreement. There are many court cases in which a plan has successfully challenged an employer's belief in the type of work for which contributions are required, resulting in the employer owing additional amounts.
Contribution Surcharges – If a multiemployer pension plan is in critical financial status (under ERISA rules), a participating employer must pay the plan an automatic surcharge in addition to the contribution otherwise required under the CBA. In general, the amount of the surcharge is equal to 5% of required contributions for the initial critical year, and 10% for each succeeding plan year in which the plan remains in critical status. The surcharge ends on the effective date of the CBA that includes contribution and benefit terms consistent with a rehabilitation plan adopted by the plan designed to end critical status.
Withdrawal Liability – When an employer which participates in an underfunded multiemployer pension plan ceases to have an obligation to contribute to a multiemployer pension plan or ceases covered operations, ERISA requires the plan to assess the employer for a proportionate share of the underfunding as in essence, an exit fee called "withdrawal liability." Even an employer that has paid all of its required contributions is subject to withdrawal liability and depending on the severity of the plan's underfunding, the withdrawal liability can be multiples of the employer's annual contributions to the plan. A plan can collect unpaid withdrawal liability from any trade or business under common control with the signatory employer. The common control group rules are complex but in essence they expose sufficiently related businesses to the withdrawal liability.
Interest, Liquidated Damages, Attorney's Fees and Audit Costs – If a fringe benefit plan is successful in a lawsuit seeking to collect unpaid contributions or withdrawal liability, ERISA provides that a court must also award the plan interest, liquidated damages and attorney's fees. When payments are delinquent, plans generally add these amounts to the claim, even before a lawsuit, escalating the cost of settlement. Many plan trust agreements also charge the employer for the cost of the plan auditing the employer's records if the audit finds delinquent contributions.
Although these and other "hidden" costs of participating in multiemployer fringe funds often surprise employers, they shouldn't. Information on all of them can be found by reviewing the plan's documents such as the trust, participation agreement, special notices and funding status notices. Employers who have not yet done so should gather and review all plan related documents so they understand the potential costs of participation and ending participation. In many cases, with advance planning and assistance from experienced legal counsel, these costs can be avoided or minimized.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
