Ninth Circuit Rules that Withdrawal Liability is Dischargeable in Bankruptcy

Ninth Circuit Rules that Withdrawal Liability is Dischargeable in Bankruptcy

 Withdrawal liability can arise when an employer ceases to participate or reduces its participation in a multiemployer pension plan, and the plan's assets are not sufficient to meet the benefits that have been promised to participants. What that can mean for employers is a large assessment from the plan's trust fund. The assessment, which is based on statutory formulas and the trust's policies and procedures, is designed to represent the employer's share of the plan's unfunded vested benefits (the benefits the plan has promised to participants but does not have funds to pay). The dollar value of a withdrawal liability assessment varies based on the funding levels of a particular plan and an employer's historical contributions to the plan, but it is not uncommon for an assessment of withdrawal liability to total several million dollars.

The statutory provisions that govern this liability weigh heavily in favor of the pension plan, leaving employers with few options to challenge an assessment of withdrawal liability. The Ninth Circuit, however, recently offered some welcome relief for employers in dire financial straits. On August 20, 2013, in Carpenters Pension Trust Fund for N. California v. Moxley [an enhanced version of this opinion is available to subscribers], the court ruled that withdrawal liability is dischargeable in a Chapter 7 bankruptcy.

Despite this ruling, employers considering either a reduction in force that may affect pension contributions or a full withdrawal from a pension plan should consult with their attorney to reduce the chances of an unexpected assessment of withdrawal liability.

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Electronic Alerts are written by Barran Liebman attorneys for their clients and friends. Alerts are not intended as legal advice, but as employment law, labor law, and employee benefits announcements.

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