The imposition of withdrawal liability is a statutory mechanism designed to dissuade employers from withdrawing from participation in multiemployer pension plans. The rules governing withdrawal liability are found in the Multiemployer Pension Plan Amendments Act of 1980, which amended ERISA to impose withdrawal liability upon employers that cease contributions to a multiemployer defined benefit pension plan with unfunded vested benefits. Plan fiduciaries are required to (1) determine the amount of liability, (2) notify the employer of the amount of liability and (3) collect the liability.
Understanding withdrawal liability means acknowledging that there is very little subjective application to the process. It is a creation of statute subject to strict enforcement, not generally a situation where a plan decides to apply the liability or not, and the numbers used to calculate the liability are not subject to great discretion in their computation. The liability of a withdrawing employer is calculated according to statute and collected according to statute, and failure to satisfy withdrawal liability is punished under the statutes.
Withdrawal liability applies only to multiemployer defined benefit pension plans, not to defined contribution plans (such as annuity or 401(K) plans) or to welfare plans.
What follows is a generally summary of the basic concepts impacting an employer in a withdrawal scenario. Because each withdrawal is factually specific to the employer and the fund involved, it cannot be assumed that all concepts apply in every situation. However, these basics will help explain how withdrawal liability works.
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