Sixth Circuit OKs $1.7M Penalty for Pension Withdrawal

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By Jacklyn Wille

Feb. 4 — A rubber company can't reduce its $1.7 million withdrawal liability assessment by arguing that its exit from a union pension fund was “union-mandated,” the U.S. Court of Appeals for the Sixth Circuit held.

The company urged the court to adopt an alternate—and more forgiving—method for calculating withdrawal liability, because its exit from the pension fund was the result of unilateral union action. The court declined to do so in its Feb. 4 decision, finding that this case didn't present a compelling reason to create new common law under the Employee Retirement Income Security Act.

In particular, the court said that ERISA provides comprehensive rules for how withdrawal liability should be calculated, including special rules that reduce assessments in certain circumstances. Because no provision of ERISA allowed a reduction for union-mandated withdrawals, the court declined to reduce the $1.7 million assessment to the $312,000 figure suggested by the company.

Union-Mandated Withdrawal

Rubber Associates Inc. was obligated to contribute to the United Food & Commercial Workers Union-Employer Pension Fund until 2009, when the union unilaterally disclaimed interest in representing the company's workers after a 17-month strike.

When the fund assessed withdrawal liability of more than $1.7 million—more than half the company's annual sales figures—Rubber Associates appealed to an arbitrator.

The company pointed to a 1991 report of the Pension Benefit Guaranty Corporation that provided alternate calculation methods in cases of union-mandated withdrawals.

Although the report stated that union-mandated withdrawals were rare and didn't justify the creation of special rules, the report also offered three methods for calculating liability in these instances, should Congress ever decide to amend ERISA's rules for calculating withdrawal liability.

Both the arbitrator and the U.S. District Court for the Northern District of Ohio rejected the company's arguments and upheld the $1.7 million assessment.

No Reduction Warranted

On appeal, the Sixth Circuit said that the statutory text of ERISA—and its failure to include the special rule advanced by Rubber Associates—doomed the company's bid for a reduced assessment.

The court noted that Congress never adopted the calculation method suggested by the PBGC, despite having 24 years to do so.

“Congress knew about the possibility of union-mandated withdrawals, was presented with several suggestions for legislative action, but ultimately chose not to act,” the court said. “It is not our role to create law in situations where Congress has declined to act.”

According to the court, the proper remedy for Rubber Associates was to “lobby Congress to carve out a special remedy for employers facing union-mandated withdrawals, not to ask this court to create law outside of the ERISA framework—especially where, as here, ERISA is not silent or ambiguous.”

The decision was written by Judge Julia Smith Gibbons and joined by Senior Judge Eugene E. Siler Jr. and Judge Karen Nelson Moore.

The union was represented by Littler Mendelson. Rubber Associates was represented by Jackson Lewis.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com