On February 9, the US Department of the Treasury (Treasury) released additional proposed regulations implementing the benefit suspension provisions of the Multiemployer Pension Reform Act of 2014 (MPRA).

The proposed regulations address MPRA’s rule for multiemployer plans in “critical and declining” status that includes benefits attributable to a participant’s service with any employer that has (1) withdrawn from the plan in a complete withdrawal, (2) paid its full withdrawal liability, and (3) assumed liability, pursuant to a collective bargaining agreement, for providing benefits to participants and beneficiaries that is equal to any benefits for such participants and beneficiaries reduced as a result of the financial status of the plan.

Importantly, these proposed regulations do not affect the larger community of multiemployer pension plans or employers that contribute to them. They are exclusively important to the Central States, Southeast and Southwest Areas Pension Fund (CSPF) and its largest contributing employer, United Parcel Service Inc. (UPS).

The proposed regulations trace their genesis to a 2007 labor agreement between UPS and the Teamsters, in which it was agreed that UPS could withdraw from the CSPF for a lump sum payment of $6.1 billion. As part of that agreement, UPS established a new jointly trusteed single-employer pension plan for UPS’s employees who were previously covered under the CSPF. UPS also guaranteed that it would provide benefits to participants and beneficiaries that were equal to any benefits reduced as a result of the financial status of the CSPF (referred to as the “make-whole agreement” in the proposed regulations).

Earlier this month, in Resilient Floor Covering Pension Tr. Fund Bd. of Trs. v. Michael's Floor Covering, Inc. (9/11/15), the US Court of Appeals for the Ninth Circuit, for the first time, found successor liability as a means to hold companies responsible for multiemployer pension plan withdrawal liability. Although the Ninth Circuit has previously applied successor liability in other labor and employment contexts, including in situations where multiemployer plans seek delinquent multiemployer pension plan contributions from companies under a successor liability theory, this is the first time the appeals court has explicitly applied successor liability in the context of multiemployer pension plan withdrawal liability.

In Michael’s Floor Covering, the court found that, in general, a successor employer may be subject to multiemployer pension plan withdrawal liability and, in particular, a construction industry successor employer can be subject to such liability, “so long as the successor took over the business with notice of the liability.” For purposes of imposing such withdrawal liability, the court held that “the most important factor in assessing whether an employer is a successor [] is whether there is substantial continuity in the business operations between the predecessor and the successor, as determined in large part by whether the new employer has taken over the economically critical bulk of the prior employer’s customer base.” The court's ruling also sets out the list of factors courts should consider when deciding whether a company is a successor that can be held liable for multiemployer withdrawal liability.

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A recent Seventh Circuit Court of Appeals case highlights a troubling trend of courts finding successor liability for multiemployer pension contributions and withdrawal liability following corporate asset sale transactions.

In 1990, the Seventh Circuit held in Upholsterers’ International Union Pension Fund v. Artistic Furniture of Pontiac that under ERISA, a purchaser of assets could be liable for delinquent pension contributions owed by the seller to a multiemployer pension fund, provided that there is sufficient evidence of continuity of operations and the purchaser knew of the liability of the seller.

Subsequently, in 2011, the Third Circuit in Einhorn v. M.L. Ruberton Construction Co. reversed a lower court ruling and held that a purchaser of assets of an employer obligated to contribute to a multiemployer benefit plan may, where there was a continuity of operations and the purchaser knew of delinquency, be held liable for the delinquent contributions.

Recently, in Tsareff v. Manweb Services, Inc., the Seventh Circuit has taken what some may consider a step too far in holding that an asset purchaser could be liable for a seller’s withdrawal liability triggered as a result of an asset sale, provided that the purchaser had known of the seller’s “contingent” withdrawal liability that would be triggered by the sale. The Seventh Circuit found that the buyer knew of the potential withdrawal liability because it engaged in due diligence and addressed withdrawal liability responsibility through an indemnification clause in the asset purchase agreement. The Seventh Circuit remanded the matter back to the district court to determine whether there was a sufficient continuity of operations after the sale for the buyer to be a “successor” and hence liable.

*UPDATE*

As we were posting, the IRS released draft instructions for 2015 ACA reporting. These draft instructions confirm that for 2015 reporting, ALEs that contribute to multiemployer health plans need only to receive confirmation from each such plan of three things: that the plan (1) offers minimum essential coverage that is affordable, (2) provides minimum value to individuals who satisfy the plan’s eligibility conditions, and (3) offers minimum essential coverage to those individuals’ dependents. The ALEs do not need more detailed information from the multiemployer plans to complete their 2015 reports. This IRS clarification is welcome guidance to ALEs that contribute to one or more multiemployer plans, as it simplifies their preparation for 2015 reporting.

* * *

The Affordable Care Act (ACA) reporting requirements are in full force for 2015. These reporting rules require both applicable large employers (ALEs, which are generally employers with 50 or more full-time employees) and other entities that provide minimum essential health coverage—including multiemployer health plans—to gather and report certain information to the IRS and covered individuals. These entities must report 2015 health coverage information to individuals by February 1, 2016 (the annual due date is January 31, but the date is adjusted for 2016 because January 31 is a Sunday) and to the IRS by the end of February or March 2016, depending on the number of reports.

Identifying and capturing the required information can be a daunting task for an ALE. ALEs must collect a significant amount of data for each full-time employee (i.e., an employee who works on average 30 or more hours a week or 130 or more hours a month) for each month of 2015. This information includes: (i) each month that an employee enrolled in coverage (or the reason an employee was not enrolled); (ii) each month an employee was offered minimum essential coverage providing minimum value; (iii) each month that minimum essential coverage was offered to the employee’s spouse and/or dependent children under age 26; and (iv) the dollar amount of the employee’s share of the lowest cost monthly premium for self-only coverage providing minimum value that was offered.