Second Circuit Finds ERISA Withdrawal Liability Exception Does Not Apply Where Asset Purchaser Can Subsequently Reduce Employee Hours

On May 3, 2012, the United States Court of Appeals for the Second Circuit (the federal appellate court with jurisdiction over New York), in a 2-1 decision, confirmed an arbitration award concerning a multiemployer pension plan’s assessment of withdrawal liability. See HOP Energy, L.L.C. v. Local 553 Pension Plan, Docket No. 10-3889-cv (2d Cir. May 3, 2001). The case began when a contributing employer entered into an asset purchase agreement that gave the purchaser the right to amend, revise, or terminate any collective bargaining agreement to layoff employees or otherwise reduce the total number of hours for which it was required to make contributions to the pension fund.

The Fund’s Trustees assessed $1,204,007 in withdrawal liability against the seller maintaining that this provision took the transaction outside the protection of ERISA Section 4204, which provides an exception to withdrawal liability where the purchaser retains an obligation to contribute to the plan for “substantially the same number of contribution base units” for which the seller was obligated to contribute. Despite the employer’s appeals, the arbitrator, the District Court, and the Second Circuit agreed with the Trustees’ assessment of withdrawal liability. The court reasoned that although the purchaser was subject to the same contribution rate, it was not obligated to contribute for the same “hours of pay” and consequently did not qualify for ERISA Section 4204 exemption from withdrawal liability.