Bd. of Trs. of the IBT Local 863 Pension Fund v. C & S Wholesale Grocers, Inc.

• Decision Date: 16 September 2015
• Docket Number: 14–1957.,Nos. 14–1956,s. 14–1956
• Citation: 802 F.3d 534
• Parties: BOARD OF TRUSTEES OF THE IBT LOCAL 863 PENSION FUND, Appellant/Cross–Appellee v. C & S WHOLESALE GROCERS, INC. Woodbridge Logistics LLC, Appellees/Cross–Appellants.
• Court: U.S. Court of Appeals — Third Circuit

802 F.3d 534

BOARD OF TRUSTEES OF THE IBT LOCAL 863 PENSION FUND, Appellant/Cross–Appellee

v.C & S WHOLESALE GROCERS, INC. Woodbridge Logistics LLC, Appellees/Cross–Appellants.

Nos. 14–1956

14–1957.

United States Court of Appeals, Third Circuit.

Argued Jan. 12, 2015.

Opinion Filed: Sept. 16, 2015.

Thomas J. Hart, Esq., (Argued), Slevin & Hart, Washington, D.C., Kenneth I. Nowak, Esq., Zazzali Fagella Nowak Kleinbaum & Friedman, Newark, NJ, Counsel for Appellant/Cross–Appellee.

Susan K. Hoffman, Esq., (Argued), Matthew J. Hank, Esq., Littler Mendelson, Philadelphia, PA, Counsel for Appellees/Cross–Appellants.

Before: McKEE, Chief Judge, HARDIMAN and SCIRICA, Circuit Judges.

OPINION OF THE COURT

McKEE, Chief Judge.

I. INTRODUCTION

This appeal arises from a disagreement between C & S Wholesale Grocers, Inc./Woodbridge Logistics LLC (“Woodbridge”) and the Board of Trustees of the IBT Local 863 Pension Fund (“the Board”) about the amount that Woodbridge should pay annually after withdrawing from the IBT Local 863 Pension Fund (“the Fund”) in 2011.¹ At the time of its withdrawal from the Fund, Woodbridge was the largest wholesale grocery distributor by revenue in the United States. The Board administers the Fund, which is a multiemployer pension plan² subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. Before withdrawing from the Fund, Woodbridge had been contributing to it pursuant to three collective bargaining agreements (“CBAs”).³

As a result of amendments to ERISA in the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”), 29 U.S.C. §§ 1381 –1461, employers cannot withdraw from multiemployer pension plans without consequence. Instead, they still must pay the share of the Fund's total unfunded vested benefits allocable to them. The parties here agree that the total amount that Woodbridge owes is $189,606,875. Because Woodbridge has elected to satisfy this “withdrawal liability” through annual payments instead of a lump sum, the amount of those payments is at the heart of this dispute.

One of the provisions added to ERISA by the MPPAA, 29 U.S.C. § 1399(c)(1)(C)(i), provides that the annual payments must be based on the “the highest contribution rate at which the employer had an obligation to contribute under the plan....” The first point of disagreement between the parties is the meaning of “highest contribution rate.” The Board seeks to select the single highest rate from the multiple contribution rates established in the three CBAs under which Woodbridge was contributing to the Fund. Woodbridge contends that it is responsible only for a weighted average of all of the contribution rates it is obligated to pay under the CBAs. The second point of disagreement is whether Woodbridge's annual payment should include a 10 percent surcharge that Woodbridge had been paying pursuant to 29 U.S.C. § 1085(e)(7)(A) before withdrawing from the Fund. This subsection is part of another amendment to ERISA, the Pension Protection Act of 2006 (“PPA”), 29 U.S.C. § 1085. The Board claims this surcharge should be included in the annual payment that Woodbridge owes. Woodbridge disagrees.

After an unsuccessful attempt at arbitration, both parties filed suit in the District Court. Thereafter, the District Court partially granted and partially denied the parties' cross motions for summary judgment. The court ruled that the annual withdrawal liability payment should be based on the single highest contribution rate (rather than averaging the rates in Woodbridge's CBAs), but should not include the surcharge. For the reasons that follow, we affirm the District Court's order and hold that: (1) the “highest contribution” rate means the single highest contribution rate established under any of the three CBAs, and (2) the annual payment does not include the 10 percent surcharge.

II. STATUTORY BACKGROUND

Congress designed ERISA to regulate both single employer and multiemployer private pension plans. 29 U.S.C. § 1001 et seq. In enacting ERISA, Congress sought to guarantee that “if a worker has been promised a defined pension benefit upon retirement—and if he has fulfilled whatever conditions are required to obtain a vested benefit—he actually will receive it.” Nachman Corp. v. Pension Benefit Guar. Corp., 446 U.S. 359, 375, 100 S.Ct. 1723, 64 L.Ed.2d 354 (1980). As mentioned above, this dispute focuses on multiemployer plans.

A significant drawback of multiemployer pension plans is that “the possibility of liability upon termination of a plan create[s] an incentive for employers to withdraw from weak multiemployer plans.” Concrete Pipe & Prods. of Cal., Inc. v. Contr. Laborers Pension Tr. for S. Cal., 508 U.S. 602, 608, 113 S.Ct. 2264, 124 L.Ed.2d 539 (1993). When an employer withdraws from a pension plan before fully funding the amounts attributable to its employees, the plan's contribution base is reduced and the remaining contributing employers have no choice but to absorb the higher costs through increased contribution rates. See Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 216, 106 S.Ct. 1018, 89 L.Ed.2d 166 (1986). This may jeopardize the plan's survival because the remaining employers have an increased incentive to also withdraw. Id. The MPPAA was enacted to mitigate the incentives that employers would otherwise have to withdraw from multiemployer pension plans mired in financial difficulty.

See Concrete Pipe, 508 U.S. at 608–09, 113 S.Ct. 2264.

Under the MPPAA, when an employer completely withdraws from a multiemployer pension plan, it incurs withdrawal liability that corresponds to the value of the benefits in the plan that have vested and are attributable to its employees.⁴ 29 U.S.C. § 1391(c)(3), provides the formula with which a plan's actuaries are to calculate the amount of this liability.⁵ In short, this liability is “the employer's proportionate share of the plan's ‘unfunded vested benefits,’ calculated as the difference between the present value of vested benefits and the current value of the plan's assets.” Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 725, 104 S.Ct. 2709, 81 L.Ed.2d 601 (1984) (citing 29 U.S.C. §§ 1381 and 1391 in explaining that the withdrawal liability is “a fixed and certain debt to the pension plan”). An employer may make a onetime payment to satisfy its entire withdrawal liability or it may amortize the debt in equal annual payments under Section 1399(c)(1)(A).⁶ The formula for calculating the amount of each of these annual payments is provided in 29 U.S.C. § 1399(c)(1)(C)(i) :

Except as provided in subparagraph (E), the amount of each annual payment shall be the product of—

(I) the average annual number of contribution base units for the period of 3 consecutive plan years, during the period of 10 consecutive plan years ending before the plan year in which the withdrawal occurs, in which the number of contribution base units for which the employer had an obligation to contribute under the plan is the highest, and

(II) the highest contribution rate at which the employer had an obligation to contribute under the plan during the 10 plan years ending with the plan year in which the withdrawal occurs.

The contribution base units mentioned in Section 1399(c)(1)(C)(i)(I) are generally the compensable or paid hours for which an employer contributes to the plan on behalf of its employees. See Huber v. Casablanca Indus., Inc., 916 F.2d 85, 95 n. 21 (3d Cir.1990) (describing contribution base units as “e.g., hours worked, weeks worked, tons of coal”), abrogated on other grounds by Milwaukee Brewery Workers' Pension Plan v. Joseph Schlitz Brewing Co., 513 U.S. 414, 115 S.Ct. 981, 130 L.Ed.2d 932 (1995). The term “obligation to contribute,” in 29 U.S.C. § 1399(c)(1)(C)(i)(II), is defined in 29 U.S.C. § 1392(a) as an obligation arising either “(1) under one or more collective bargaining (or related) agreements, or (2) as a result of a duty under applicable labor-management relations law.”

In 2006, Congress amended ERISA again. It enacted the PPA “to protect and restore multiemployer pension plans in danger of being unable to meet their pension distribution obligations in the near future.” Trs. of the Local 138 Pension Tr. Fund v. F.W. Honerkamp Co., Inc., 692 F.3d 127, 130 (2d Cir.2012). Under Section 1085(b)(2)(A), which was added by the PPA, a multiemployer pension plan that is less than 65 percent funded is in “critical status.” When a plan is in critical status, Section 1085(a)(2) requires the plan sponsor to adopt and implement a rehabilitation plan. This rehabilitation plan “must set forth new schedules of reduced benefits and increased contributions, from which participating employers and unions may choose when it is time to negotiate successor CBAs.” Honerkamp, 692 F.3d at 131.

In addition to requiring a rehabilitation plan, the PPA imposes an automatic surcharge from 30 days after the employer has been notified that the plan is in critical status until the adoption of a new CBA in accordance with the rehabilitation plan. 29 U.S.C. § 1085(e)(7)(C)-(D). In the first year, the surcharge is equal to five percent of the contributions required under the CBA. Id. § 1085(e)(7)(A). In subsequent years, the surcharge is fixed at 10 percent of the contributions. Id. Under Section 1085(e)(7)(B), surcharges are “due and payable on the same schedule as the contributions on which the surcharges are based. Any failure to make a surcharge payment shall be treated as a delinquent contribution under [29 U.S.C. § 1145 ]....” Section 1085(e)(9)(B), in turn provides that “[a]ny surcharges under paragraph (7) shall be disregarded in determining the allocation of unfunded vested benefits to an employer under section 1391, except for purposes of determining the unfunded vested benefits attributable to an employer under section 1391(c)(4) or a comparable method approved under section 1391(c)(5).”

On December 16, 2014, Congress passed the Multiemployer Pension...