A recent Seventh Circuit decision clarified the standard for when an employer can rely on ERISA §4204’s exemption to withdrawal liability. In Central States, Southeast and Southwest Areas Pension Fund v. Georgia-Pacific LLC, the Seventh Circuit affirmed a decision holding that an employer did not trigger an obligation to pay withdrawal liability as a result of the sale of one of its divisions. In this case, the employer originally contributed to the Fund on behalf of employees working in two divisions: Pulp and Paper Transport and Building Products. In 1994, Georgia-Pacific outsourced the covered work performed by the Pulp and Paper Transport Division before closing that division entirely in 1995. Georgia-Pacific did not incur withdrawal liability as a result of either event. Between 1994 and 1997, Georgia-Pacific reduced contributions to the Fund on behalf of employees in the Building Products Division, and the Fund assessed withdrawal liability for a partial withdrawal.
In 2004, Georgia-Pacific sold the Building Products Division in a sale intended to comply with ERISA’s §4204 assets sale exemption from withdrawal liability. The Fund’s withdrawal liability demand asserted that Georgia-Pacific was nonetheless liable for withdrawal liability because the sale of assets was not the “sole” reason for the withdrawal, such that the requirements of §4204 were not satisfied. In the assessment, the Fund excluded the contribution history for employees whose contributions were assumed by the purchaser in the asset purchase agreement. Georgia-Pacific challenged the withdrawal liability assessment.
The arbitrator ruled in favor of Georgia-Pacific finding that the sale of the Building Products Division was covered by §4204, and that the employer did not owe withdrawal liability as a result of the sale. Specifically, the arbitrator found that the length of time between the events in 1994-1997 and the sale in 2004 supported treating the events as distinct, found that there was no common scheme or pattern among the different events, and found that the 2004 sale was motivated by identifiable business considerations. The district court enforced the arbitration decision.
The Court’s Decision
On appeal, the Seventh Circuit focused on the question of whether, if the sale had not occurred, the employer would have incurred withdrawal liability. According to the court, this question separates out “the role of the sale from the role of everything else.” In addition, the court considered the tax law step-transaction doctrine, finding no reason to overturn the arbitrator’s conclusion that the earlier transactions were independent and should not be consolidated and treated as a single withdrawal. Ultimately, the court found that the protections of §4204 applied because Georgia-Pacific’s sale of the Building Products Division was not part of a plan to withdraw in stages and because the sale transferred an ongoing business to an entity willing and able to make pension contributions.
Q&B Key: For employers who are making contributions to multi-employer plans, this case underscores the importance of indentifying and articulating the underlying business reasons for decisions that impact contributions to such funds. The court’s consideration of the step-transaction doctrine in this context suggests that courts will continue to look beyond the current circumstances to determine whether an employer has attempted to “evade or avoid” withdrawal liability. Employers — especially those who contribute to the Central States Plan, a fund the court noted was “a uniquely aggressive seeker of withdrawal payments,” are encouraged to document the business reasons for decisions that impact their contributions to multi-employer funds.