Labor & Employment Law Daily Wrap Up, PENSION AND BENEFIT PLANS—N.D. Ill.: Pension fund cannot use post-2014 contribution rate to figure employer’s withdrawal liability, (May 8, 2025)

By Ronald Miller, J.D.

Any post-2014 rate increases should be disregarded when calculating the employer’s withdrawal liability.

After an employer ended its participation in a multiemployer pension plan, an arbitrator correctly found that a pension fund improperly used its post-2014 contribution rate figures to determine the payment schedule for withdrawal liability, ruled a federal district court in Illinois. The applicable language of Section 1085 instructs that any and all increases in the contribution rate made in order to meet a rehabilitation plan should be “disregarded” unless permitted by Section 1085(f)(1)(B). Because all the employer’s post-2014 contribution rate increases were excluded from the withdrawal liability calculation, the court enforced the arbitrator’s decision on this issue (Kellanova v. Central States, Southeast and Southwest Areas Pension Fund, Nos. 24 C 918 and 24 C 941 (N.D. Ill. May 5, 2025)).

Critical status. The fund is a multiemployer pension plan, and the plaintiff was a contributing employer to the fund. In 2008, the fund’s actuary certified that it was in critical status and added to its plan document an initial Rehabilitation Plan. A rehabilitation plan may require an employer to, among other things, increase its contributions for the plan to emerge from critical status.

On December 31, 2012, the employer effected a partial withdrawal from the fund (2012 Partial Withdrawal). As a result, it incurred withdrawal liability to the fund that was payable in a lump sum of $3,335,480.58, or via a payment schedule providing for payments of $72,195.71.

Contribution rate. On July 28, 2019, the employer effected a complete withdrawal from the fund (the 2019 Complete Withdrawal). Consequently, it incurred withdrawal liability to the fund that was payable in a lump sum of $330,455,053.41, or 240 monthly payments of $703,421.11. In determining this payment schedule, the fund used the highest contribution rate of $234.90 per week, which is the highest contribution rate that the employer paid after January 1, 2015, and prior to the 2019 Complete withdrawal. However, the highest pre-2015 contribution rate paid by the employer was $208.80.

The fund stated that it should be able to use the post-2014 contribution rate increases in determining the 2019 Withdrawal Liability payment schedule. On the other hand, the employer challenged the fund’s application of the so-called prior partial credit for the 2012 Partial Withdrawal, which is a credit the fund used to reduce the amount owed for the 2019 Complete Withdrawal.

Arbitrator’s ruling. Following arbitration of these issues, the arbitrator found “the post-2014 contribution rate increases cannot be included in the highest contribution rate used to determine the Company’s withdrawal liability” under 29 U.S.C. § 1085(g)(3)(A). Regarding the prior partial credit issue, the arbitrator found the fund “correctly applied the partial withdrawal credit as” part of the second adjustment under 29 U.S.C. § 1381(b)(1)(B). Both parties disagreed with the arbitrator’s decision and thus moved to modify in part and enforce in part the award.

Withdrawal liability. Withdrawal liability is imposed on an employer that ends its participation in a multiemployer plan either completely or in part. The MPPAA creates an exit price to disincentivize employers from withdrawal from multiemployer pension plans.

Congress later enacted the Pension Protection Act of 2006 (PPA) to increase funding levels for severely underfunded multiemployer pension plans. Depending on the funding level, the statute requires that the funds adopt a “funding improvement plan” or “rehabilitation plan” that includes “revised benefit structures” or “contribution structures” for employers to increase the plans’ funding. “But by reducing plans’ unfunded vested benefits through increased employer contribution rates, the Pension Protection Act paradoxically also increased employers’ withdrawal liability payments (which are calculated using the employers’ highest contribution rate).”

Here, the parties specifically dispute: (1) how to calculate withdrawal liability payments under 29 U.S.C. § 1085(g); and (2) whether the prior partial credit—located in 29 U.S.C. § 1386(b)(1)—is applied during the second adjustment to unfunded vested benefits under 29 U.S.C. § 1381(b)(1)(B).

Withdrawal liability payments. Section 1085(g) outlines the adjustments from funding improvement plans and rehabilitation plans that should be “disregarded in withdrawal liability determination.” In other words, the statute’s general rule is that “any increase in the contribution rate... that is required or made in order to enable to meet the requirement of the funding improvement plan or rehabilitation plan shall be disregarded” when calculating the highest contribution rate.

Because the fund here adopted a rehabilitation plan, 29 U.S.C. § (f)(1)(B) is the only relevant exception. “Subsection (f)(1)(B) permits a plan to be amended to increase benefits only if ‘the plan actuary certifies’ certain facts about the increase.”

The fund did not contend that the post-2014 rate increases at issue in this case were certified by an actuary to meet the requirements of subsection (f)(1)(B). Rather, it argued that because 29 U.S.C. § 1085 (f)(1)(B) prohibits “a benefit/benefit accrual increase pursuant to a rehabilitation plan amendment that is not accompanied by the required actuarial certification,” it permits “all other types of benefit/benefit accrual increases.” This contention was incorrect.

The applicable language of Section 1085 instructs that any and all increases in the contribution rate made in order to meet a rehabilitation plan should be “disregarded” unless permitted by Section 1085(f)(1)(B). Consequently, any post-2014 rate increases should be disregarded when calculating the employer’s withdrawal liability.

Prior partial credit. Under the MPPAA, withdrawal liability is either “partial,” i.e., imposed when “the employer permanently ceases to have an obligation to contribute under one or more but fewer than all collective bargaining agreements under which the employer has been obligated to contribute under the plan,” or “complete,” i.e., imposed when the employer “permanently ceases to have an obligation to contribute under the plan.”

When calculating withdrawal liability—whether complete or partial—Section 1381(b)(1) states to first calculate “the amount determined under section 1391 of this title to be the allocable amount of unfunded vested benefits [or the ‘UVB’].” Then a series of four adjustments to the UVB must be made, if applicable: (A) first, by any de minimis reduction applicable under Section 1389 of this title; (B) next, in the case of a partial withdrawal, in accordance with Section 1386 of this title; (C) then, to the extent necessary to reflect the limitation on annual payments under Section 1399(c)(1)(B) of this title; and (D) finally, in accordance with Section 1405 of this title.

In sum, the total withdrawal liability an employer must pay for a partial or complete withdrawal from a multiemployer plan is equal to the sum of the UVB, and the four adjustments enumerated in Section 1381(b)(1)(A)-(D).

Here, the parties contested whether the arbitrator correctly applied the second adjustment under Section 1381(b)(1)(B). The employer argued that the arbitrator erred by applying the 2012 Partial Withdrawal as part of the second adjustment rather than as a post-adjustment credit to the 2019 Complete Withdrawal. In contrast, the fund argued that the arbitrator was correct because the plain language of the statute requires applying the credit for the 2012 Partial Withdrawal as part of the second adjustment.

Consistent with the court’s ruling in Consumers Concrete Corp. v. Cent. States, Se. & Sw. Areas Pension Fund, 2025 WL 1001799, at *4 (N.D. Ill. Apr. 3, 2025), “the prior partial credit must be applied after the four adjustments of section 1381(b)(1).” Thus, the court found that the fund and the arbitrator erred by applying the prior partial credit for the 2012 Partial Withdrawal at the second adjustment under Section 1381(b)(1)(B). The prior partial credit must be applied after the four adjustments outlined in Section 1381(b)(1)(A)-(D).

The cases are Nos. 24 C 918 and 24 C 941.

Judge: Hunt, L.

Attorneys: Brad R. Berliner for Central States, Southeast and Southwest Areas Pension Fund. Emily Allison Kile-Maxwell (Faegre Drinker Biddle & Reath) for Kellanova Company.

Companies: Kellanova Company; Central States, Southeast and Southwest Areas Pension Fund

Cases: PensionBenefitPlans Arbitration IllinoisNews