In March 2008, the trustees of the Local 138 Pension Trust Fund determined that the fund had entered into critical status as defined under the Pension Protection Act of 2006 (PPA). Once a multiemployer plan falls into critical status, it must adopt the rehabilitation plan in order to improve its funding status.

The fund expected that the rehabilitation plan and other alternatives or options available to the employers and the collective bargaining units would not be determined until late 2008. F.W. Honerkamp Company, Inc. had two collective bargaining agreements that were due to expire, which provided for participation in the fund. Honerkamp and the collective bargaining units agreed to extend the terms of the agreements until the terms of the fund’s rehabilitation plan were known. Under PPA, if an employer and the collective bargaining unit do not agree to an alternative approach offered under the rehabilitation plan, they must comply with the default option under the rehabilitation plan. After notification of the terms of rehabilitation plan, Honerkamp and the collective bargaining units agreed to withdraw from the fund in 2009.

The trustees of the fund brought suit claiming that the amendments enacted by PPA did not allow for voluntary withdrawals in this situation. Rather, the trustees claimed that while the fund remained in critical status, employers and the collective bargaining units must remain in the fund and contribute under the rehabilitation plan. The U.S. Court of Appeals for the Second Circuit affirmed the lower court decision, holding that PPA did not impose any limitations on the ability of an employer and a collective bargaining unit to withdraw from a multiemployer plan. The Second Circuit found that there was no distinction in the legislative history of PPA between voluntary and involuntary withdrawals and that some provisions of PPA indicate that withdrawal could occur from a multiemployer plan in critical status and noted that the Pension Benefit Guaranty Corporation recognized that withdrawal could occur in this situation when it issued regulations under PPA. (Trustees of the Local 138 Pension Trust Fund v. F.W. Honerkamp Co., 2nd Cir. 2012)