Woodbridge Logistics, LLC was a contributing employer to a multiemployer pension fund prior to its withdrawal from the fund in February 2011. Woodbridge had been obligated to contribute to the fund under three collective bargaining agreements (CBAs). The CBAs required Woodbridge to contribute to the fund based on the number of hours worked by covered employees. The hourly contribution rates under the CBAs ranged from $1.50 to $3.69 per hour.
The Pension Protection Act of 2006 amended ERISA to impose a surcharge if a multiemployer plan is in critical status – meaning generally that the plan is less than 65 percent funded. For the first year the multiemployer plan is in critical status, the surcharge is equal to 5 percent of the contributions the employer is otherwise required to contribute under the applicable CBA. In each succeeding year the plan remains in critical status, the surcharge percentage increases to 10 percent. At the time of Woodbridge’s withdrawal, the fund had been in critical status for several years, meaning Woodbridge had been subject to the 10 percent surcharge.
The annual amount of a withdrawn employer’s withdrawal liability payments is the product of:
- The average annual number of contribution base units for the period of three consecutive plan years during the period of 10 consecutive plan years ending before the plan year in which the withdrawal occurs in which the number of contribution base units for which the employer had an obligation to contribute under the plan was the highest and
- The highest contribution rate at which the employer had an obligation to contribute under the plan during the 10 plan years ending with the plan year in which the withdrawal occurs.
A contribution base unit is the unit with respect to which the employer is obligated to contribute to the multiemployer fund. In the case of Woodbridge, the contribution base unit was hours worked. An “obligation to contribute” generally means an obligation to contribute to a multiemployer fund that arises under a CBA or applicable labor-management law. Under ERISA, if an employer’s withdrawal liability does not fully amortize after 20 years of annual payments, the employer’s withdrawal liability is generally limited to the first 20 annual payments.
Following Woodbridge’s withdrawal, the fund determined and then notified Woodbridge of the amount of its withdrawal liability and the schedule for payments. In calculating the amount of Woodbridge’s annual payments, the fund (1) determined Woodbridge’s highest contribution rate to be $3.69 per hour and (2) added the 10 percent surcharge to the contribution rate, thus determining Woodbridge’s highest contribution rate to be $4.06. Woodbridge contested the propriety of both determinations, arguing (1) a blended rate should have been used to determine the highest contribution rate in order to reflect the fact that Woodbridge was obligated to contribute to fund at a range of rates and (2) the surcharge did not factor into the determination of the highest contribution rate because it did not arise under the CBAs or applicable labor-management laws. Importantly, Woodbridge’s withdrawal liability did not fully amortize after 20 years under the fund’s annual payment determination. Accordingly, any reduction in the highest contribution rate would result in direct savings for Woodbridge.
The district court first held that ERISA’s use of “highest contribution rate” unambiguously means the highest rate at which the employer was required to contribute to the plan rather than a blended rate to reflect a range of contribution rates. As a result, the court upheld the fund’s determination to use the $3.69 per hour amount to determine Woodbridge’s annual withdrawal liability payment.
The court rejected, however, the fund’s determination to also include the 10 percent surcharge in calculating Woodbridge’s annual withdrawal liability payment. The court reasoned that the obligation to contribute for the 10 percent surcharge arose under ERISA, not under the CBAs or applicable labor-management law. Thus, the surcharge did not constitute an “obligation to contribute” as defined by ERISA. As a result the court’s holding, the highest contribution rate used to determine Woodbridge’s annual withdrawal liability payments was decreased from $4.06 to $3.69. (Bd. of Trustees of the IBT Local 863 Pension Fund v. C&S Wholesale Grocers, Inc., D.N.J., 2014)