An employer signed to a collective bargaining agreement may be obligated to make contributions to a multiemployer pension plan. That pension plan is likely severely underfunded. Most contributing employers are generally familiar with the concept of withdrawal liability. They at least know that it’s a big scary number. But, it should not be ignored. Until your assessed by a multiemployer pension plan, that big scary number is only a potential liability contingent on your withdrawal from the plan. A cessation in the obligation to contribute to the pension plan will trigger an assessment of employer withdrawal liability. You may have some defenses to the assessment, or at least the amount, as calculated by the pension plan. However, if you fail to timely request a review and arbitration, you essentially waive all defenses to the assessment and the pension plan will likely file an action in federal district court. Such a complaint will not be a lawsuit on the merits, but a collection action with only one generally available defense, payment in full.

To avoid this harsh result, employers should be mindful of the deadlines for requesting a review of the assessment and arbitration. It’s important to seek qualified counsel in this process as the requests for review and arbitration must satisfy very stringent statutory requirements. For example, an employer is unable to submit the matter to arbitration if it fails to timely request a review. An employer’s deadline to request a review is 90-days after the assessment is provided. The deadline for submitting the matter to arbitration is a little trickier. An employer must initiate arbitration on the earlier of: (1) 60 days after the date the plan responds to the employer’s request for a review; or (2) 180 after the employer’s request for review. An unwary employer may miss the arbitration deadline by simply waiting for and expecting the pension plan to respond, which it has no obligation to do.

However, pension plans may now be more likely to respond to an employer’s request for review with a determination. In a recent arbitration decision, by failing to respond to the employer’s request for review the arbitrator held that the plan was not entitled to the assumption of correctness normally afforded to its determination. Because according to the arbitrator, by failing to respond to the employer’s request for review, the pension plan failed to make a determination.

Also, employer withdrawal liability is a “pay now and dispute later” statute. In other words, until an arbitrator or judge determines that an employer is not liable, the employer must make installment payments. An employer that fails to pay during the dispute may find itself in federal court in a futile attempt to defend a collection action for the entire principal amount, interest, attorney fees and costs. If the employer prevails in arbitration on the underlying obligation, it may be entitled to a refund of the principal payments made, but not the attorney fees collected by the pension plan.

Employer withdrawal liability can sink an otherwise thriving business. As with any other risks and potential liabilities, we recommend that you diligently monitor any potential employer withdrawal liability and engage counsel in timely responding to any assessments to preserve your defenses.