Caveat Obliges Sponsor in Multi-Employer Plan to Withdrawal Liability

July 3, 2012 ( – An employer failed to win its argument that it was exempt from withdrawal liability to a multi-employer pension plan for an operating unit it sold to another company.

The 2nd U.S. Circuit Court of Appeals upheld a district court ruling that HOP Energy was not exempt from withdrawal liability under the Multi-Employer Pension Plan Amendments Act (MPPAA) because the purchaser of HOP’s New York City operating division lacked an obligation to contribute “substantially the same number of contribution base units” to the pension fund post-sale as HOP had contributed pre-sale.    

The asset purchase agreement between the two companies stated that the purchasing company shall make contributions to the Local 553  Pension  Fund  for substantially the same number of contribution base units  for  which  HOP  had  an  obligation  to contribute with respect to the operations covered by the  pension fund.  However, the agreement included a caveat that said: “Notwithstanding  the  previous sentence and except as otherwise provided in Section 12.1, nothing in this Section shall impair or limit the Purchaser’s right to discharge, lay off, or hire employees or otherwise to manage the operations of the Business, including the right to amend, revise or  terminate  any  collective  bargaining  agreement currently in effect and, as a consequence, reduce to any  extent  the  number  of  contribution  base  units with respect to which [the purchasing company] has an obligation to contribute to any plan.”  

The appellate court agreed that the purchasing company had an obligation to contribute to the fund at the same base unit rate, but it said the purchaser had no obligation to maintain substantially the same number of base units.  Therefore, the sale did not qualify HOP for an exemption from withdrawal liability.  

The court opinion further explained that nothing in the union-employer agreements in the record  [those  between  Local  553  and  the purchasing company] require[d] the purchaser, in respect to the operations of HOP  to  keep  a  certain  number  of employees, whether from the purchaser’s ranks or HOP’s, on the payroll to achieve a contribution base unit level that would remain substantially the same as HOP’s pre-sale.  

The opinion in HOP Energy, LLC v. Local 553 Pension Fund is here.