A recent ruling by the US Court of Appeals for the Third Circuit serves provides a valuable reminder for multiemployer pension funds and contributing employers regarding ERISA’s withdrawal liability notice and demand requirements. Specifically, the case presents a recap of what it means for a notice and demand to be provided “as soon as practicable” under ERISA Section 4219(b)(1) and the interplay of that timing requirement with common defenses raised for withdrawal liability demands that are allegedly less than timely.
In Allied Painting & Decorating Inc. v. International Painters and Allied Trades Industry Pension, No. 23-1537 (3d Cir. 2024), the US Court of Appeals for the Third Circuit reviewed a lower court’s decision to vacate an award of $427,195 of withdrawal liability to the International Painters and Allied Trades Industry Pension Fund (the Fund) for the Fund’s failure to furnish a timely withdrawal liability notice and demand to Allied Painting & Decorating Inc. (APD) under ERISA. The dispute began when APD withdrew from the Fund, and 12 years passed before the Fund issued a withdrawal liability notice and demand.
The parties initiated arbitration, where APD raised a “laches” defense—a defense often raised by employers in withdrawal liability disputes where there is a significant time-lapse between an employer’s withdrawal and its receipt of a withdrawal liability notice and demand. As background, laches is an equitable doctrine raised by a party to deny relief to a claimant that otherwise made a valid claim, but where the claimant “unreasonably” delayed asserting the claim and caused the raising party undue prejudice.
The arbitrator concluded that the Fund did not issue the required withdrawal liability notice and demand “as soon as practicable” and that the 12-year delay was, in fact, unreasonable. However, the arbitrator further concluded that APD failed to establish that it experienced severe or material prejudice because of the delay and dismissed the laches defense. The Fund was therefore awarded $427,195 in withdrawal liability to be paid by APD. APD challenged the arbitration award in the US District Court for the District of New Jersey.
The New Jersey district court disagreed with the arbitrator and vacated the award, finding that APD was prejudiced by the Fund’s unreasonably delayed notice and demand. The Fund appealed, and the Third Circuit Court of Appeals affirmed the district court’s decision to vacate the arbitrator’s award. However, the Third Circuit upheld the lower court’s decision on a basis that the Fund failed to issue a withdrawal liability notice and demand “as soon as practicable” under ERISA Section 4219(b)(1) rather than on APD’s laches defense.
Specifically, the Third Circuit court found that ERISA Section 4219(b)(1) requires the following three steps for a pension fund to assert a withdrawal liability claim:
- The employer must withdraw from the pension fund
- “As soon as practicable” after the withdrawal, the pension fund must provide notice of the withdrawal to the employer and demand payment
- The employer must default on a payment that is “due and payable”
Notably, the Third Circuit court stated that nothing in ERISA requires a finding that an employer is prejudiced by a delayed withdrawal liability notice and demand (as opposed to the prejudice requirement to establish a laches defense). The decision discussed timing requirements, noting that ERISA does not specify the meaning of “as soon as practicable” and concluded that such a determination should be made considering the relevant facts and circumstances.[1]
The Third Circuit Court found that in providing the withdrawal liability notice and demand twelve years after APD’s cessation of contributions, the Fund failed to provide the notice and demand “as soon as practicable.” Therefore, the Fund did not meet one of the fundamental elements to make its claim and the withdrawal liability award was vacated.
The Third Circuit court also discussed and distinguished the “as soon as practicable” timeframe from the six-year statute of limitations for a pension fund to assert a valid claim against an employer. The Third Circuit Court stated that once a timely demand for payment is made and payment is not delivered, ERISA’s six-year statute of limitations starts to run, cautioning that the six-year period does not start immediately upon the employer’s withdrawal.
Key Takeaways for Pension Funds and Employers
For pension funds, the Allied Painting decision is a friendly reminder that multiemployer pension funds should be vigilant to ensure they are monitoring for employer withdrawals and issuing withdrawal liability demands on a timely basis. This may include deploying an efficient and repeatable process for identifying employer withdrawals and, once identified, for issuing and following up on withdrawal liability demands.
Pension funds should pay particular attention to partial withdrawals and withdrawals resulting from corporate transactions that may be more difficult to detect. Monitoring may be facilitated by maintaining close contact with employers and local unions who may be the first to know about significant employer events that may trigger complete or partial withdrawals, such as location closures, large layoffs, or upcoming corporate transactions.
For employers, Allied Painting teaches us that there is no guarantee that a laches defense will prevail unless there is clear evidence of unreasonable delay and prejudice to the employer, and the ERISA statute of limitation begins when the employer fails to make a withdrawal liability payment that is due and payable. In addition, whether a pension fund satisfies the “as soon as practicable” requirement under ERISA largely depends on the relevant facts and circumstances, such as the period of delay between the employer’s withdrawal event and the fund’s issuance of the withdrawable liability demand, as well as the reason for the delay, as ERISA does not prescribe specific timing.
As a result, employers should consider diligently analyzing the potential impact of significant events that could trigger multiemployer pension fund withdrawal liability, particularly changes in the workforce that may result in a reduction in contribution base units and withdrawals triggered by corporate transactions. Once identified, an employer might consider its strategy for disclosing (or not disclosing) the event and/or requesting that a pension fund furnish any required notice and demand, balancing the desire to have a withdrawal liability claim made and resolved in a timely manner against the possibility that the fund’s failure to assert a claim for a significant period of time could provide the employer with a complete defense against an assessment of liability.
How We Can Help
Funds and employers that have questions about the impact of this case or the withdrawal liability assessment process generally can contact the authors of this piece or their regular Morgan Lewis employee benefits contact.
[1] The Third Circuit cited Black’s Law Dictionary, noting that ‘“as soon as practicable” means “reasonable time,” but is not synonymous with ‘as soon as possible.”’