The Multiemployer Pension Plan Amendments Act (MPPAA), the Employee Retirement Income Security Act’s (ERISA) progeny, can create significant unexpected liabilities for companies that have agreed to collective bargaining agreements (CBAs) requiring participation in and contributions to multiemployer-defined benefit pension funds (often referred to as Taft-Hartley Funds). However, a special exemption is available to employers in the construction industry.

Background: Withdrawal Liability

An ostensibly minor term in a CBA as to which fund an employer must contribute for its employees’ retirement can handicap and restrict how the company may be operated, sold, or even shut down.

The financial burdens on such employers are caused by a penalty known as withdrawal liability. Withdrawal liability was a Congressional effort to correct “underfunding” of many pension funds. In this area, underfunding means the pension fund does not have sufficient assets to pay all its liabilities. In business parlance, it means a company cannot pay its bills that, in the economic marketplace, can lead to insolvency, bankruptcy, and imposition of liability upon owners. This logic of the marketplace does not apply in the world of ERISA. The liabilities of the funds fall directly upon contributing employers, even though they did nothing to cause the financial problems and, in many situations, were unaware. In the world of ERISA, the contributing employers are burdened with those obligations, which...

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