A recent ruling from the Sixth Circuit Court of Appeals, Local No. 499, Board of Trustees of Shopmen's Pension Plan v. Art Iron, Inc., et al., joined a number of other circuit courts in applying the Supreme Court’s “common control” approach in Comm’r v Groetzinger 480 U.S. 23 (1987) to determine who, besides a withdrawing employer should be treated as a “trade or business” under common control with the withdrawing employer and thus jointly and severally liable for the withdrawing employer’s withdrawal liability from a multiemployer pension plan.
Background
The Employee Retirement Income Security Act of 1974 (ERISA) governs retirement plans, The Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) was added to ERISA to protect multiemployer plans when participating employers decide to withdraw from those plans by requiring the withdrawing employer (and its’ affiliates) to pay its share of the Plan’s "unfunded vested benefits."
Key Legal Principle
Under 29 U.S.C. § 1301(b)(1), all "trades or businesses" under "common control" with a withdrawing employer are jointly and severally liable for the withdrawal liability. See: Addressing the Risks of Related Employer Status for Benefit Plan Purposes. The statute doesn’t define a “trade or business.” The Supreme Court, in Groetzinger, held that to be a "trade or business," (1) the activity’s primary purpose must be to generate income or profit and (2) the activity must be continuous and regular.
The Art Iron Case
In Art Iron, the employer, Art Iron, shut down its business, sold its assets and withdrew from the Shopmen’s Pension Plan. Robert Schlatter, Art Iron’s sole shareholder, officer, and director operated a separate consulting business that provided services to Art Iron. His spouse also owned an inactive jewelry-making sole proprietorship. The Shopmen’s Pension Plan argued that both spouses were personally liable for withdrawal liability because their respective businesses were under “common control” with Art Iron at the time of its withdrawal.
The Court held that Robert Schlatter’s consulting business was continuous and regular and thus, was a trade or business for withdrawal liability purposes. In contrast, the Court held that although his spouse’s jewelry business would be considered under common control if it was continuous or regular, because the business had been inactive for several years, it was not a trade or business for withdrawal liability purposes.
Key Takeaways
The Art Iron case is an important reminder about the importance of knowing which business are considered to be related employers for benefit plan purposes and serves as a wake-up call for an employer withdrawing from a multiemployer plan: its’ withdrawal may have financial consequences not just for entity withdrawing but for other related entities and affiliates, owners, spouses and other individuals. Planning a withdrawal should include both a thorough assessment of who might be a related employer for these purposes and how to mitigate, if possible, the impact of potential joint and several liability of such entities.
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