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CCH® PENSION — 06/04/12

Union may indemnify employer for withdrawal liability owed to multiemployer plan

A provision in a collective bargaining agreement requiring a union to indemnify an employer for withdrawal liability owed to a multiemployer plan does not violate public policy and is enforceable against the union, the U.S. Court of Appeals in Cincinnati (CA-6) has ruled.

Indemnification provision

A CBA required a union to indemnify the employer for any "contingent liability" that might be imposed under ERISA's withdrawal liability provisions, as added by the Multiemployer Pension Plan Amendments Act of 1980.

An attempt to renegotiate the CBA between the union and the employer failed, and the employer withdrew from the multiemployer plan. The plan assessed the employer $57,000 in withdrawal liability. The union refused to indemnify the employer, which then filed suit in district court to enforce the CBA provision. The district court stayed federal proceedings pending arbitration.

During arbitration, the union argued the indemnification provision was unenforceable because it violated public policy. Both the arbitrator and eventually the district court rejected that argument, and ordered the union to reimburse the employer for the withdrawal liability.

Public policy

The appeals court also rejected the union's public policy argument. In so doing, the court found ERISA §410 to be instructive. While ERISA §410 generally prohibits as against public policy any agreement that would relieve a fiduciary from responsibility under ERISA's fiduciary rules, it permits an ERISA fiduciary to purchase insurance to cover any potential liability for a fiduciary breach.

There is no logical difference, the court reasoned, between contracting with an insurance company under ERISA §410(b) and negotiating an indemnification provision such as the one in the employer's contract with the union. The employer remained financially liable to the plan and indeed satisfied its financial obligation. Accordingly, the court affirmed the district court's ruling ordering the union to satisfy its contractual obligation.

CCH Note: In this case of first impression, the Sixth Circuit joined the Third Circuit, which has upheld a similar CBA indemnification provision (see Pittsburgh Mack Sales & Service, Inc. v. International Union of Operating Engineers, Local Union No. 66)..

Source: Shelter Distribution, Inc. v. General Drivers, Warehousemen & Helpers Local Union No. 89 (CA-6).

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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