On March 11th, Andrey Tomkiw along with Frank Mamat and Mark Gaffney spoke to the Association for Corporate Growth on Michigan’s Right to Work Law.
The panelists answered a number of questions posed by moderator Christopher Barrett. The audience became both interested and concerned when the risks of withdrawal liability were discussed. Both Mr. Mamat and Mr. Tomkiw shared experiences where clients were exposed to significant liabilities because of withdrawal from a multi-employer pension plan. To follow up on the discussion this morning, Tomkiw Mackewich wanted to offer a more thorough explanation of withdrawal liability and Right to Work’s impact on employers.
Typically, withdrawal liability is triggered in two circumstances: first, when an employer permanently ceases to have a contribution obligation under the plan, and second, if the employer permanently ceases all covered operations under the plan. Right to Work’s impact is that by lowering the number of dues-paying members of a Union, the Union may determine there is no value to representing that group of employees and disavow the bargaining unit. The Union disavowing the bargaining unit ceases the employer’s contribution obligation under the plan, and triggers withdrawal liability for the employer. At that juncture, the employer is required to make up any shortfall in pension funding, which is in most cases astronomical.
In the deal-making context, all the panelists agreed that withdrawal liability should be closely considered when valuing a business for purchase or sale. Unfunded pension liabilities can stretch into the millions of dollars even with relatively few employees with only a few years of union membership.
Withdrawal liability is also particularly scary because it can be easily imputed on other entities within the same “control group,” a broad definition created by the IRS that can, if all elements are met, lead to imputed withdrawal liability to entities with seemingly unrelated businesses, but are owned and controlled by the same parent company or group of five or fewer shareholders.
Anyone buying, selling, or in business should be concerned about triggering potential withdrawal liabilities. While a union could always disavow a bargaining unit, they rarely chose to, and employers had little fear of triggering withdrawal liability unknowingly. Right to Work has increased the likelihood of disavowment and increased the risk that an employer will have a significant, and unexpected, liability.
Tomkiw Mackewich is dedicated to providing our clients with the guidance and resources needed to succeed. Please contact us and we will be happy to assist you and your business navigate Right to Work, withdrawal liability, or any other business law needs.