ERISA claims arise from breach of contract allegations
Newark, NJOn March 23, the Trustees of the Teamsters Pension Trust Fund of Philadelphia and Vicinity filed a lawsuit in federal court in New Jersey, alleging that UPS had failed to make required contributions to the pension and welfare funds for 2015. The ERISA lawsuit seeks nearly $300,000 in unpaid contributions to the two plans plus attorneys’ fees and other costs.
The shortfall in contributions was discovered in the course of an audit for 2015. As an enforcement device, many fund trustees have adopted the practice of conducting routine audits of the books and records of contributing employers. The complaint asserts that UPS has not disputed the findings. UPS claims to be reviewing them.
Contributions set by collective bargaining agreement
According to the Pension Benefit Guaranty Corporation, there are at least 1,400 multiemployer defined benefit pension and welfare plans, covering about 10 million participants. Many of these participants are employed by small companies in building and construction, as well as the trucking and transportation industries.
In a multiemployer plan, like the pension and welfare plans at issue in Trustees of the Teamsters Pension Trust Fund of Philadelphia and Vicinity et al. v. UPS, an employer’s contribution level is set by under the terms of a contract negotiated between the union and the employers. Collective bargaining agreements specify a formula, such as $3 per hour worked by each covered employee, and require that contributions be paid to the plan on a monthly basis.
The underlying calculation of the pension component can become especially complex because multiemployer pension plans are generally defined benefit plans. Unlike the more familiar 401k plan, defined benefit plans are designed to pay a monthly lifetime annuity of a set dollar amount beginning at retirement. The employer contribution required to fund that promised benefit depends on mortality and interest rate assumptions. These factors can be very population-specific and vary over time. As a result, the negotiations over the required contribution levels, can become quite intense and lawsuits are not uncommon. In 2020, for example, plan participants sued UPS for using outdated life expectancy assumptions.
ERISA ups the ante
Damages available in a simple breach of contract lawsuit or under other sections of ERISA may be limited by the terms of state or federal law. However, the breach of contract claim in Trustees of the Teamsters Pension Trust Fund also triggers an ERISA claim under Section 515 of the law.
Section 515 of ERISA requires every employer who is obligated by a collective bargaining agreement to make contributions to a multiemployer plan to do so. That section of the law transforms a contract right into a statutory one.
Section 502(g) provides that in any action commenced to enforce payment of delinquent contributions, a court may award the plan an amount equal to:
the unpaid contributions; plus
an amount equal to the greater of interest on the unpaid contributions or liquidated damages provided for under the plan; plus
reasonable attorney’s fees and costs of the action; plus
such other legal or equitable relief as the court deems appropriate
ERISA's regulatory scheme focuses on protecting the plan's participants and beneficiaries. Contributing employers, on the other hand, may have a real and present interest in understating their contribution obligations. Some employers have even resorted to bankruptcy as a way of avoiding pension and welfare fund contribution obligations.
When Congress passed the Multiemployer Pension Plan Amendments Act in 1980, it added Sections 515 and 502(g)in recognition of the challenges faced by fund trustees in collecting delinquent contributions. Both if these changes speak to Congress’s awareness of the importance of contributions to the fiscal soundness of multiemployer funds.
ERISA enforcement is dependent first on the vigilance of plan participants and beneficiaries and secondly on the availability of effective remedies. The underlying policy of permitting courts to award interest or liquidated damages plus costs seems to be to encourage the affected parties to enforce their statutory rights. It may also add an extra incentive for employers to make required contributions in a timely way. In either case, Sections 515 and 502(g) of ERISA add an extra layer of security to participants’ retirement funds.
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