Court Finds Withdrawal Liability Is Not A Plan Asset

In a case where the employer was represented by lawyers from Susanin, Widman & Brennan, P.C., the U.S. District Court for the District of New Jersey found as a matter of law that unpaid withdrawal liability does not constitute a “plan asset” under the Employee Retirement Income Security Act (“ERISA”). [Einhorn v. Twentieth Centruy Refuse Removal Company, et al., Civil No. 1:11-cv-01451 (December 27, 2011)].

In its Amended Complaint, the Teamsters Pension Fund sought to recover unpaid withdrawal liability from Defendant shareholders of 20th Century Refuse on a theory that Defendant shareholders breached their fiduciary duty to the Teamsters Pension Fund. According to the Amended Complaint, 20th Century Refuse was assessed withdrawal liability after it sold its assets and ceased operations. The Amended Complaint further alleged that the Defendant shareholders were fiduciaries to the Teamsters Pension Fund because Defendant shareholders exercised discretionary authority over money from the sale of 20th Century Refuse’s assets that should have been used to pay 20th Century Refuse’s withdrawal liability. In its Amended Complaint, Plaintiff alleged that 20th Century Refuse’s withdrawal liability was a plan asset. Because an ERISA fiduciary is defined as a person, who among other things, exercises any authority or control respecting management or disposition of plan assets, according to Plaintiff’s theory, the Defendant shareholders are therefore fiduciaries, and failing to pay withdrawal liability is a breach of their fiduciary duty.

Based upon arguments made by attorneys at Susanin, Widman & Brennan, P.C., in a case of first impression, the District Court rejected Plaintiff’s theory -- expressly finding that Defendant shareholders cannot be fiduciaries because withdrawal liability is not a plan asset. The Court found that the money from the sale of 20th Century Refuse’s assets could only be a plan asset if the Pension Fund had an ownership interest in said money at the time Defendant shareholders were alleged to have control over it. In this respect, the Court specifically held that corporate officers of an employer cannot be held liable for breach of fiduciary duty merely by exercising control over company assets not immediately paid to the assessing pension fund. Furthermore, the Court found that withdrawal liability is not immediately due and owing to the Pension Fund as each hour is worked. Therefore, the Pension Fund has no vested interest in the money from the sale of 20th Century Refuse at the time withdrawal liability was assessed.

The Court also found that the Teamsters Pension Trust Fund’s Trust Agreement did not define withdrawal liability as a plan asset. The Court, however, did not pass judgment on the issue of whether or not withdrawal liability could contractually be made a plan asset – thus, creating a fiduciary duty over said assets. The Court did hold that Plaintiff sufficiently pled a claim under ERISA’s evade or avoid statutory provision which voids transactions to evade or avoid withdrawal liability. While the lawsuit will continue over the scope of ERISA’s evade or avoid statutory provision, a Court has found that corporate officers are not breaching fiduciaries to Pension Funds by failing to pay withdrawal liability.