Arbitrator Reduces Employer’s Annual Withdrawal Liability Payment

Generally, employers make withdrawal liability payments annually which is referred to as an “annual payment amount.” An arbitrator recently drastically reduced an employer’s “annual payment amount” finding that the fund’s calculations of the amount violated ERISA. The arbitrator found that the fund’s inclusion of PPA surcharges and Rehab Plan increases was improper.

By way of refresher, a “red zone” plan must adopt a PPA Rehabilitation Plan. PPA surcharges are contribution surcharges during the term of the collective bargaining agreement in effect when the plan enters “red zone” status. If a Rehab Plan compliant contribution schedule is not adopted, a Rehab Plan increase is unilaterally imposed.

The arbitrator concluded that the highest contribution rate used for calculating the annual installment payments is the single highest contribution rate established under the employer’s relevant collective bargaining agreements, therefore the PPA surcharges and Rehab Plan increases implemented after the employer’s CBA expired could not be included. The arbitrator's ruling saved the employer approximately $15 million over the 20-year payment period. Funds are cautioned to calculate carefully annual payments for employer withdrawal liability amounts based on the applicable CBAs.