Peeps Maker Owes $255K for New Worker Pension Benefits

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By Jacklyn Wille

Just Born II Inc., manufacturer of Peeps and other candy, can’t avoid paying more than $255,000 in union pension contributions on behalf of new employees who the candy-maker tried to transition to a 401(k) plan.

The April 26 decision by the U.S. Court of Appeals for the Fourth Circuit is a victory for the Bakery & Confectionery Union & Industry International Trust Fund, which in 2012 adopted a “rehabilitation plan” to address its severe underfunding. Just Born objected to portions of the rehabilitation plan requiring contributions to be made on behalf of newly hired employees. The Fourth Circuit said Just Born had to make the extra contributions even though the company no longer was subject to a collective bargaining agreement with the union.

In so ruling, the Fourth Circuit answered a question not previously addressed by the federal appeals courts: namely, whether a rehabilitation plan adopted by a financially troubled union pension fund can require contributions from an employer that’s no longer in a bargaining relationship with the relevant union. In answering yes, the Fourth Circuit said Just Born still qualified as a “bargaining party” under federal pension law, even though its bargaining agreement had expired.

The dispute has roots in the Pension Protection Act of 2006, which requires multiemployer pension funds in “critical status"—in general, those that are less than 65 percent funded—to develop rehabilitation plans aimed at boosting funding levels. These plans often require employers to increase the contributions they make to the fund. Employers that object to rehabilitation plans have had little success in court: The Eleventh Circuit recently barred an employer from using the Employee Retirement Income Security Act to challenge a rehabilitation plan, and a federal judge in Tennessee followed suit last fall.

The pension fund in this case is projected to be insolvent by 2030.

No ‘Hotel California’

Just Born argued that a ruling in favor of the pension fund would create a “‘Hotel California’ scenario,” in which employers are forced to pay into struggling pension funds in perpetuity—even after their bargaining agreements have ended. The Fourth Circuit disagreed, saying that Just Born could avoid payments under the rehabilitation plan if it formally withdrew from the pension fund and paid any outstanding liabilities associated with the withdrawal.

“ERISA does not allow Just Born this course,” the court said. “Just Born can either withdraw and pay the penalty for doing so, or remain and make the required payments under the Provision; it cannot avoid both obligations.”

Just Born isn’t alone in challenging the bakery union’s rehabilitation plan. Retirees who receive benefits through the plan filed suit in 2014 to challenge the fund’s benefit reductions, ultimately obtaining a $10 million settlement.

The Fourth Circuit decision was written by Judge James A. Wynn Jr. and joined by Judges G. Steven Agee and Stephanie D. Thacker. It affirms a 2017 decision by a federal judge in Maryland.

Bredhoff & Kaiser PLLC represented the pension fund. Baker & Hostetler LLP represented Just Born.

The case is Bakery & Confectionery Union & Indus. Int’l Pension Fund v. Just Born II, 4th Cir., No. 17-1369, decision affirming ruling for plaintiff 4/26/18.

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