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CCH® PENSION — 12/21/09

Union may indemnify employer for withdrawal liability owed to multiemployer plan

A union may use a collective bargaining agreement to indemnify an employer for the withdrawal liability owed by the employer to a multiemployer plan, the U.S. Court of Appeals in Philadelphia (CA-3) has ruled in Pittsburgh Mack Sales & Service, Inc. v. International Union of Operating Engineers, Local Union No. 66.

Notice of liability

After selling its truck sales and service business to a third party, an employer received notice from a multiemployer pension fund that the employer owed over $400,000 in withdrawal liability.

The employer in turn contacted the union, demanding that it pay the withdrawal liability. The employer argued that in its collective bargaining agreement with the union, the union had agreed to indemnify it against any claims for withdrawal liability. The union disagreed, so the employer filed a declaratory judgment action to resolve the dispute.

District court

The district court held that the CBA's indemnification provision could not be enforced as it was contrary to public policy as manifested in ERISA and the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA).

Public policy concerns

The appellate court disagreed. Courts must find "definite indications" in the relevant laws and legal precedents to justify the invalidation of a contract as contrary to the policies supported by those laws.

The appellate court acknowledged public policy concerns underlying ERISA and the MPPAA: pension funds should be adequately funded, even when employers withdraw from them, so that workers relying on those funds will be protected. However, these concerns will continue to be addressed, the court explained, even if indemnification agreements between employers and third parties are permitted, so long as the employer remains primarily liable for the withdrawal liability. The employer conceded the fact of this continuing liability, both in briefs and at oral argument. Thus a private contract containing an indemnification provision in this context does not defeat the purposes of ERISA or the MPPAA.

On remand, the court held, the union is free to argue, among other things, that the language in the CBA does not actually indemnify the employer.

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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