In a Delaware bankruptcy court decision issued on September 13, Judge Goldblatt ruled that bankrupt employer Yellow Corp. must pay at least a portion of $6.5 billion in pension liabilities to 11 multiemployer pension plans (MEPPs). Following the court’s ruling, employers should prepare to face liability for withdrawing from an MEPP that received federal relief funds, even if the pension plan is not in fact underfunded.
The case arises following the MEPPs’ receipt of billions of dollars in special financial assistance from the Pension Benefit Guarantee Corporation (PBGC) pursuant to the American Rescue Plan Act of 2021 (ARPA), and Yellow’s subsequent withdrawal from the MEPPS as a result of its business shutdown in 2023. Although the MEPPs received $41.1 billion in federal funds pursuant to ARPA, the plans did not include or offset these amounts when determining Yellow’s $6.5 billion withdrawal liability. The court sided with the MEPPs, ruling that for purposes of calculating a plan’s unfunded vested benefits, federal relief funds awarded to the MEPPs should only be counted as “plan assets” as if they are received gradually over time, even though they were paid in lump sum. The exact amount of Yellow’s liability is yet to be determined.
Under the Employee Retirement Income Security Act (ERISA), pension withdrawal liability is defined as an employer’s portion of unfunded vested benefits, calculated as the difference between the value of vested benefits and plan assets. When an employer withdraws from an MEPP that has unfunded vested benefits, it is liable to the MEPP for its share of the underfunded amount. Following the Yellow case, an MEPP could now be fully funded and yet an employer can nevertheless be subject to withdrawal liability as though it were underfunded.
In rendering his decision, Judge Goldblatt cited two PBGC regulations, stating that their legislative intent was to prevent contributing employers from using relief funds to exit the plans, and that receipt of special financial assistance could not be used to let a withdrawing employer avoid withdrawal liability. In doing so, the Delaware court rejected Yellow’s position that the PBGC regulations exceeded its authority and are contrary to law.
As a result of the Delaware bankruptcy court’s ruling, when employers withdraw from a pension plan that has received ARPA funds, they may now be subject to withdrawal liability based on a fictitious determination of a plan’s actual assets.
If you have any questions or concerns about withdrawal liability, the effect of the Yellow case on your business, or any other labor relations matter, please do not hesitate to contact the attorneys at Tobia & Lovelace Esqs., LLC at (973) 746-6000 for further information and legal counsel.