When an employer withdraws from a pension fund with unfunded vested benefits, it is legally obligated to make interim payments to the fund upon demand, even while disputing the underlying liability. This principle, established under the Employee Retirement Income Security Act (ERISA) and the Multiemployer Pension Plan Amendments Act (MPPAA), requires compliance prior to resolution of any arbitration regarding the liability.
In this case, MAR-LEN, Inc., a construction contractor, withdrew from the Sabine Area Pipefitters Local 195 Pension Trust Fund in December 1988, leaving behind unfunded vested benefits and incurring withdrawal liability. Following its withdrawal, the Sabine Fund merged with the Plumbers and Pipefitters National Pension Fund (NPF), which subsequently notified MAR-LEN of its withdrawal liability amounting to $329,285.
MAR-LEN initiated arbitration to contest this liability but refused to make the mandated interim payments while the arbitration was ongoing. NPF filed suit to compel these payments. Concurrently, an arbitrator determined that MAR-LEN was liable but had incorrectly calculated the owed amount. The district court ultimately ruled in favor of NPF, requiring MAR-LEN to pay $223,565 in delinquent interim payments, along with additional fees and interest totaling $146,889.83. MAR-LEN's appeal focuses solely on whether it is required to make interim payments during the ongoing arbitration regarding its liability to NPF.
Following the district court's final judgment, NPF garnished approximately $14,000 from MAR-LEN, which is currently held in escrow. The amount reflects NPF’s recalculated withdrawal liability as directed by an arbitrator. Under the Multiemployer Pension Plan Amendments Act (MPPAA), an employer's failure to make interim withdrawal liability payments results in a delinquency, triggering an automatic award of attorneys' fees to the plan. MAR-LEN has not contested the attorney's fees issue, leading to the affirmation of the district court's award. Additionally, since NPF prevailed on appeal, the court will determine reasonable attorney's fees for NPF on remand.
Under ERISA as amended by the MPPAA, employers withdrawing from multiemployer pension plans must pay their share of unfunded obligations. Upon withdrawal, the plan must notify the employer, calculate withdrawal liability, and collect payments, which start within 60 days of demand. If there is a dispute, arbitration is required, but the employer must still make interim payments as determined by the pension fund. Congress has established a "pay now, dispute later" framework, making the fund the stakeholder. After the district court's judgment, the arbitrator confirmed NPF's recalculated withdrawal liability, while MAR-LEN is challenging this order in a separate lawsuit.
The Fifth Circuit has not clarified the standard for compelling interim payments, but it recognizes a "measure of discretion" for district courts. Other circuits, like the Seventh Circuit, have adopted standards that consider the employer's chances of success in arbitration and the impact of interim payments on the employer's business. Any arbitrator errors can be reviewed during pending appeals. The Pension Benefit Guaranty Board, a government entity that protects plan participants, must be considered by appellate courts in ERISA-related cases.
The excerpt addresses the application of the McNicholas standard regarding a district court's discretion in withdrawal liability cases. Although the McNicholas standard was discussed in previous cases, it was not formally adopted due to the specific issue not being before the court at that time. Subsequent clarifications by the Seventh Circuit, supported by the Pension Benefit Guaranty Board, emphasize that while a district court can consider equitable factors (like the employer's probability of success on the merits and the economic impact of interim payments), this does not permit a pre-trial evaluation of the case. The court found that if a pension plan's claim is deemed frivolous—indicating a high chance of a ruling favoring the employer—the court may excuse interim payments. Conversely, if the claim is colorable, the employer must make interim payments while contesting the underlying liability. This limited discretion is designed to protect employers from frivolous claims while ensuring that pension funds remain viable during disputes. The court affirmed that the district court correctly applied the McNicholas standard in concluding that the pension fund's claim was colorable and appropriately refrained from independently evaluating the merits of the dispute. The judgment requiring the employer to make interim withdrawal liability payments was upheld, with a suggestion for establishing an escrow account for these payments until the dispute's resolution.
