Until 2007, O’Neill Bros. Transfer & Storage took part in a multi-employer pension fund administered by the Central States Southeast and Southwest Areas Pension Fund (the “Fund”). A multi-employer fund is a pension plan in which numerous employers make contributions to a single fund on behalf of their employees. ERISA requires adequate funding levels and withdrawal liability payments upon the withdrawal of an employer from the plan. When O'Neill advised the Fund that it was preparing to liquidate, the Fund considered it a withdrawal, deemed O'Neill in default, and demanded immediate payment. The Fund filed a complaint several months later seeking the entire amount of the payment. The Court ordered the Fund to propose a payment schedule, which it did. O'Neill never accepted the schedule. Judge Der-Yeghiayan (N.D. Ill.) granted summary judgment to the Fund for a lump sum payment of the entire amount of liability. O'Neill appeals.

In their opinion, Judges Bauer, Ripple, and Kanne affirmed. The Court reviewed relevant statutory and plan provisions:

  • the plan must calculate withdrawal liability and provide an installment payment plan
  • the employer may challenge but must make the payments during the arbitration process
  • the plan may demand immediate payment in the event of default (defined as the failure to make payment if not cured or any event which the plan defines as indicating a substantial likelihood that the employer will be unable to pay)
  • under the "substantial likelihood" default, a plan may demand full payment of withdrawal liability
  • the Fund adopted a rule that included an employer's insolvency as a default event under the "substantial likelihood" clause.

The issue before the Court was whether the employer must immediately pay, notwithstanding arbitration, its entire withdrawal liability when demanded under the substantial likelihood default clause. The Pension Benefit Guarantee Corporation (PBGC) has promulgated a regulation that a default under the failure to pay paragraph does not take effect until 61 days after the arbitrator makes its decision. The substantial likelihood clause does not contain the same language as the failure to pay clause relied upon by the PBGC in reaching that conclusion. The PBGC is the agency charged with the administration of the provision -- the Court found that interpretation a reasonable one and found it worthy of deference. It therefore concluded that an accelerated default payment under the substantial likelihood clause is not deferred pending arbitration.