Pension withdrawal liability continues to be a major, penal factor to unionized companies. A rubber company recently argued that it should not be subject to a $1.7 million withdrawal liability assessment because the withdrawal from a multi-employer pension plan was union-mandated. The Company argued that this withdrawal liability should have been calculated using the Pension Benefit Guaranty Corporation’s (PBGC’s) alternate method for calculating withdrawal liability, which would have reduced its liability to $312,000. The Company lost this argument.

The Company unsuccessfully cited a 1991 PBGC report addressing union-mandated withdrawals. A union-mandated withdrawal occurs when: (1) a union “voluntarily disclaims” its status representing a group of employees, and (2) the pension plan refuses to accept the employer’s continued contributions. The report presented three methods for calculating liability in these instances. However, Congress has not yet acted on the report or amended ERISA to account for union-mandated withdrawals.

The Court found the Company’s insistence that the pension withdrawal was union-mandated unpersuasive. It explained that ERISA has a “comprehensive scheme” for determining withdrawal liability. ERISA includes several specific exceptions that reduce withdrawal liability in certain circumstances, but unfortunately, union-mandated withdrawal is not one of these exceptions.

So, at least for the time being, when a union disclaims interests in representing the workers – essentially kicking the employees out of the union – companies are on the hook to pay withdrawal liability even when the company desires its employees to remain in the union. This ruling opens the door for corruption. Take, for example, a small company whose employees collectively pay $20,000 per year in union dues. But, that company owes $1,000,000 in withdrawal liability. A union is allowed to walk away from representing the workers because it is not cost-effective for the union to represent a small unit with minimal dues revenue, but the company receives no relief from the million-dollar withdrawal liability. In legalese, that’s inequitable. In layman’s terms, that’s not fair.