Daniel J. Weiner, Esq.
March, 2014

More than One Way to Skin a Pension Fund: Working Out Withdrawal Liability Obligations

Although Michigan recently became a "right to work" state,[1] collective bargaining agreements and related pension obligations continue to create enormous financial risk for employers.  When an employer ceases to be obligated under a collective bargaining agreement to contribute to a pension fund, this cessation can trigger the employer’s liability for its portion of any unfunded pension obligations (better known as withdrawal liability).[2]  Even though the employer may have paid each and every pension fund contribution, like clockwork, the employer’s withdrawal liability can exceed millions of dollars though no fault of its own.  Worse yet, the employer’s withdrawal liability can extend to individuals and entities in its "control group," which can include the employer’s owner and even his or her spouse.[3]  This domino effect can be disastrous.  Schafer and Weiner, PLLC ("S&W") uses its deep experience in the insolvency and bankruptcy arenas to create a spectrum of opportunities to stop the dominos from falling and minimize liability exposure for our clients.

We recently used the bankruptcy process to compel a resolution of any withdrawal liability obligation by negotiating a steep discount of a pension fund's withdrawal liability claim in In re Acme Acres, LLC, Case No. 13-45044 (Bankr. E.D. Mich.).  Here, four businesses under common ownership, acting as an integrated short-haul trucking operation, were assessed the withdrawal liability under the control group doctrine after a related-employer-entity’s collective bargaining agreement expired by its own terms.  Through the bankruptcy reorganization process, each of the entities filed for chapter 11 bankruptcy protection and confirmed a plan of reorganization that allowed the entities to continue in business with the same owners and same management.  The confirmed plan allowed the debtor entities - - collectively owning about $1 million in withdrawal liability - - to satisfy that withdrawal liability obligation at an 87% discount by paying about 13 percent. 

On the other end of the spectrum, we completely avoided using the bankruptcy process by helping  a corporate debtor and its owners restructure their  business and personal assets in order to create the settlement environment necessary to consensually resolve years of withdrawal liability litigation. Here, withdrawal liability was triggered when Michigan’s construction economy collapsed in 2008 and the employer could not renew its collective bargaining agreement at competitive rates.  The business owners vigorously litigated both liability and damages for years until our firm joined the professional team.  Acting as lead negotiator and insolvency counsel, we reduced the business owners' personal exposure and, using bankruptcy as "tool in waiting" negotiated a strong settlement directly with the pension fund.  As a result, the business owners resolved $2.6 million of withdrawal liability for approximately 33 percent (of which only 8% was cash) without ever filing a personal or corporate bankruptcy, creating certainty of result and finality of process.

We look forward to helping you minimize withdrawal liability exposure in whatever forum best suits your needs.

[1] 2012 PA 349

[2] 29 U.S.C. § 1383

[3] 29 U.S.C. § 1301