Labor & Employment Law Daily Wrap Up, PENSION AND BENEFIT PLANS—7th Cir.: ERISA required that post-2014 contribution rate increases be excluded from withdrawal liability, (Apr 25, 2025)

By Ronald Miller, J.D.

The employers and fund disagree over how to calculate their withdrawal obligations, “a dispute that requires us to interpret 29 U.S.C. § 1085(g)(3).”

In a matter of first impression, the Seventh Circuit ruled that a pension fund improperly calculated the withdrawal liability of two employers that withdrew from the fund in 2019 after its actuary certified that the fund was in critical and declining status. When calculating the employers’ withdrawal liability payments, the fund used the higher 2019 rate because that was the “highest contribution rate” in the past 10 years. However, the appeals court affirmed the district court’s judgment that the employers’ post-2014 contribution rate increases should be excluded from the calculation. Accordingly, the employers’ post-2014 contribution rate increases were disregarded from their withdrawal liability payment calculations (Central States, Southeast and Southwest Areas Pension Fund v. Event Media, Inc. dba Complete Crewing, Nos. 24-1739, 24-1740, 24-1741 and 24-1742 (7th Cir. Apr. 24, 2025)).

“Withdrawal liability.” ERISA provides that any employer that withdraws from an insolvent pension plan during the five years prior to insolvency is “liable for a fair share of the plan’s underfunding.” In 1980, Congress passed the Multiemployer Pension Plan Amendments Act, which requires “employers who withdraw from under-funded multiemployer pension plans to pay withdrawal liability.”

Congress later passed the Pension Protection Act of 2006, which requires underfunded multiemployer pension plans to take certain remedial measures. Now, pension plans in “endangered status” must adopt “funding improvement plan[s],” and pension plans in “critical status” or “critical and declining status” must adopt “rehabilitation plan[s].” Both measures require the pension plan to propose changes—reduce future benefit accruals, increase contributions, or both—that would enable the plan to recover from its underfunded status.

Unintended consequence. But the Pension Protection Act’s requirements created an unintended consequence. An employer’s withdrawal liability increased as its share of unfunded vested benefits decreased (that is, it paid more to withdraw despite having fewer unfunded vested benefits in the plan). Thus, as an employer’s contribution rate increased to reduce unfunded vested benefits, the penalty for withdrawing also increased.

To address this issue, Congress adopted the Multiemployer Pension Reform Act of 2014, which excludes certain post-2014 increases in an employer’s contribution rate from the calculation of its periodic withdrawal liability payments.

Critical status. The employers in this dispute were contributing employers to the pension fund. In 2008, the fund’s actuary certified that the fund was in critical status, which required it to adopt a rehabilitation plan. When the fund’s actuary certified in 2019 that the fund was in critical and declining status and projected it would become insolvent by 2025, the employers withdrew from the fund and incurred withdrawal liability obligations.

Contribution rate. The parties dispute how much the employers must pay in periodic installments. In 2014, each employer’s contribution rate was $328, and it increased every year until reaching $424 in 2019, the year the employers withdrew from the fund. When calculating the employers’ withdrawal liability payments, the fund used the higher 2019 rate because that was the “highest contribution rate” in the past 10 years. The Employers argued the fund should have used the lower 2014 rate because 29 U.S.C. § 1085(g)(3) excludes from the calculation all post-2014 contribution rate increases that are required by a rehabilitation plan.

In a matter of first impression, the Seventh Circuit was faced with the question of what contribution rate should be used to determine the employee’s withdrawal liability.

Rehabilitation plan. When determining the highest contribution rate a pension plan should use to calculate an employer’s periodic withdrawal liability payments, § 1085(g)(3)(A) disregards any post-2014 contribution rate increase that is required to meet a funding improvement plan or rehabilitation plan. All contribution rate increases are deemed “required” unless either of two exceptions applies, neither of which applied in this case.

Exceptions. The first exception is “for increases in contribution requirements due to increased levels of work, employment, or periods for which compensation is provided.” The second is for “additional contributions … used to provide an increase in benefits, including an increase in future benefit accruals, permitted by subsection (d)(1)(B) or (f)(1)(B).” The parties agreed that neither the first exception nor subsection (d)(1)(B) applied in this instance. However, focusing on § 1085(f)(1)(b), the fund argued that the post-2014 contribution rate increases were used to provide an increase in benefits permitted by that provision. The appeals court disagreed.

Section 1085(f)(1)(B) permits amendments to a pension plan that increase benefits, but only where “the plan actuary certifies that such increase is paid for out of additional contributions not contemplated by the rehabilitation plan.” The parties agreed there was no amendment, and the fund pointed no actuarial certification, so § 1085(f)(1)(B) did not apply either. Because the post-2014 contribution rate increases were not “permitted by subsection … (f)(1)(B),” the fund must disregard them in calculating the employers’ withdrawal liability payments.

The cases are Nos. 24-1739, 24-1740, 24-1741 and 24-1742.

Judge: Kirsch, T.

Attorneys: Daniel E. Sullivan (Holwell Shuster & Goldberg) for Central States Southeast and Southwest Areas Pension Fund. David Andrew Moore (Laner Muchin) for Event Media Inc.

Companies: Central States, Southeast and Southwest Areas Pension Fund; Event Media, Inc.; Complete Crewing; Pack Expo Services, LLC

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