Casino Group’s Gamble on Partial Withdrawal Liability Hits Jackpot
Companies that contribute to multiemployer pension plans are often rightfully worried that corporate restructurings may inadvertently trigger either a complete or a partial withdrawal from the plan. A recent case out of the Third Circuit provides a helpful illustration of the partial withdrawal rules in practice. Caesar’s Entertainment Corp. v. International Union of Operating Engineers Local 68 Pension Fund, Case No. 18-2465, 2019 WL 3484247 (3d Cir. Aug. 1, 2019).
Caesar’s Entertainment Corporation (“Caesars”) operated four casinos in Atlantic City, NJ under which each casino was a party to a collective bargaining agreement (”CBA”) that required contributions to the IUOE Local 68 Pension Fund (the “Fund”) for certain engineering work performed by union employees. Because of the common ownership, these casinos were treated as a single employer for purposes of withdrawal liability. In 2014, one of the casinos shut down, and Caesars stopped making contributions to the Fund for the engineering work performed there while continuing contributions for the engineering work performed at the other three casinos. The Fund wagered that the shutdown of the casino constituted a partial withdrawal.
Under ERISA Section 4205, a partial withdrawal occurs in one of three scenarios:
- There is a 70% contribution decline.
- The employer ceases to have an obligation to contribute to a plan under one or more but fewer than all collective bargaining agreements, but continues to perform work in the jurisdiction of the type for which contributions were previously required (the “bargaining out” provision).
- The employer ceases to have an obligation to contribute under a plan for work performed at one or more but fewer than all facilities, but continues to perform work at the facility of the type for which the obligation to contribution ceased (the “facility take-out” provision).
The cessation of work performed at the casino was not sufficient to trigger the 70% contribution decline. Instead, the Fund argued that the “bargaining out provision” applied because (a) when the casino shut down Caesars ceased to have an obligation under one or more but fewer than all of the CBAs, and (b) the shutdown was parlayed with work continued to be performed at the other three casinos in the same jurisdiction. The Fund argued that it was not relevant that Caesars was required to contribute to the Fund for that work.
The Third Circuit, relying on the plain language of the statute as well as guidance from the PBGC, disagreed. It held that for the bargaining-out provision to apply, the work that continues to be performed must not be work that results in contributions to the Fund. The Third Circuit thus joined all other circuits that have examined the issue in holding that no partial withdrawal liability is imposed when an employer closes an operation and shifts work to other operations that are covered by other CBAs under which contributions are required to be made to the multiemployer plan.
This is a welcome decision for companies that are looking to restructure their operations but are worried about withdrawal liability. It also highlights that as the pension funding crisis worsens, these funds are going to be more willing to go “all in” and look for ways to stretch the reading of the statutes to impose withdrawal liability.
Contact Mark Wilkins for more information.