On July 7, 2023, the U.S. District Court for the Northern District of Alabama issued a ruling in Perfection Bakeries Inc. v. Retail Wholesale & Dep’t Store Int’l Union & Indus. Pension Fund, ordering Perfection Bakery, Inc. (Perfection Bakery) to pay the Retail Wholesale and Department Store International Union and Industry Pension Fund (the Fund) withdrawal liability in the amount of $15.6 million.
The court affirmed the previously issued arbitrator’s decision regarding the amount of withdrawal liability Perfection Bakery owed the Fund for its 2018 complete withdrawal. Perfection Bakery argued that the partial withdrawal liability it had paid as a result of its 2016 partial withdrawal should count towards the 2018 total withdrawal liability to reduce the total liability overhead cost. Perfection Bakery argued that the Fund, by not doing so, had misinterpreted the applicable law governing withdrawal liability.
The Fund did not contest that Perfection Bakery had a withdrawal liability credit but argued the credit had been factored into its total withdrawal liability amount because it applied the credit to Perfection Bakery’s allocation of unfunded vested benefits.
The court agreed with the Fund, ruling that the Multiemployer Pension Plan Amendments Act requires any withdrawal credit, including a partial withdrawal credit, to be applied as a potential adjustment and not as a reduction after adjustments are made. While this ruling aligns with the 2018 Ninth Circuit decision in GCIU-Employer Retirement Fund v. Quad/Graphics, Inc., 909 F. 3d 1214 (9th Cir. 2018), in which the Ninth Circuit ruled that prior partial withdrawal liability credits are to be applied as part of any potential adjustments, it fundamentally misinterprets the law and is contrary to the Pension Benefit Guaranty Corporation’s (PBGC) own guidance. The PBGC has stated that “in the event of a subsequent withdrawal” a plan sponsor “must first” calculate the subsequent withdrawal liability and “then reduce that amount by the amount of partial withdrawal liability previously assessed.” See PBGC Op. Ltr. 82-35 (November 15, 1982); see also PBGC Op. Ltr. 85-4 (January 30, 1985) (reaffirming similar guidance on the partial withdrawal liability credit).
These decisions indicate a risky shift in the interpretation of the Multiemployer Pension Plan Amendments Act and place employers, such as Perfection Bakery, in the unfair position of paying more than their fair share of withdrawal liability at the time of a complete withdrawal.
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