PPA Surcharges Not Included in Withdrawal Liability

A federal court has weighed in on what “the highest contribution rate” means in the calculation of a multiemployer plan member’s withdrawal liability.

The 3rd U.S. Circuit Court of Appeals has agreed that the withdrawal liability for a member of a multiemployer pension plan that is subject to more than one collective bargaining agreement (CBA) should be calculated using the highest contribution rate established in any of the CBAs.

The appellate court found that there is no ambiguity in the definite article “the” used in the phrase “the highest contribution rate” in the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA). “[I]t is clear that Congress appreciated that an employer might contribute at different rates under multiple plans and designated “the highest” rate as the appropriate rate to apply in calculating annual payments of the withdrawal liability,” the court wrote in its opinion

C&S Wholesale Grocers argued that a Pension Benefit Guaranty Corporation (PBGC) opinion letter suggested that an average of the contribution rates in its three CBAs should be used to determine its withdrawal liability from the IBT Local 863 Pension Fund. However, the court said it would not consider the argument since it found that the plain language of the MPPAA required otherwise.

C&S also argued that the withdrawal liability calculated by the fund was unfair because it resulted in annual payment greater than the contributions it was paying before withdrawing from the plan. The court said it was not at liberty to change the law to address C&S’s perceived inequity.

Before withdrawing from the multiemployer pension plan, C&S was paying a surcharge as required under the Pension Protection Act (PPA). When a plan is in critical status, the PPA requires the plan sponsor to implement a rehabilitation plan and imposes a surcharge until the adoption of new CBAs in accordance with the rehabilitation plan. The Board of the IBT Local 863 Pension Fund included this surcharge in its calculation of withdrawal liability.

The court found that the PPA surcharge should not be included in the withdrawal liability, saying it cannot be added to C&S’ payment unless it is part of the highest contribution rate under the CBAs. “[C]ontributions are not to be conflated with contribution rates,” the appellate court said. In addition, it said the surcharge does arise from the CBAs and does not amend the underlying terms of the CBAs.