Bd. of Trs. of the W. States Office & Prof'l Emps. Pension Fund v. Welfare & Pension Admin. Serv., Inc.

BOARD OF TRUSTEES OF THE WESTERN STATES OFFICEAND PROFESSIONAL EMPLOYEES PENSION FUND, Plaintiff, v. WELFARE & PENSION ADMINISTRATION SERVICE, INC., Defendant.

Case No. 3:19-cv-00811-SB

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON

May 19, 2020

OPINION AND ORDER

BECKERMAN, U.S. Magistrate Judge.

This matter comes before the Court on plaintiff Board of Trustees of the Western States Office and Professional Employees Pension Fund (the "Board") and defendant Welfare and Pension Administration Service, Inc.'s ("WPAS") cross-motions for summary judgment. The Court has jurisdiction over this matter pursuant to 29 U.S.C. §§ 1401 and 1451, and both parties have consented to the jurisdiction of a U.S. Magistrate Judge pursuant to 28 U.S.C. § 636. For the reasons explained below, the Court denies the Board's motion for summary judgment and grants WPAS's cross-motion for summary judgment.

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BACKGROUND

I. ERISA STATUTORY FRAMEWORK

"Congress designed [the Employee Retirement Income Security Act ("ERISA")] to regulate both single employer and multiemployer private pension plans." Bd. of Trs. of IBT Local 863 Pension Fund v. C&S Wholesale Grocers, Inc., 802 F.3d 534, 536 (3d Cir. 2015) (citation omitted). The parties' dispute concerns a multiemployer pension plan. (Decl. Jeremy Roller Supp. Def.'s Resp. & Cross-Mot. Summ. J. ("Roller Decl.") Ex. A-1, at 2, ECF No. 17-1.)

"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.'" C&S Wholesale, 802 F.3d at 536 (quoting Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension Tr. for S. Cal., 508 U.S. 602, 608 (1993)). If "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." Id. (citing Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 216 (1986)). That in turn could "jeopardize the plan's survival because the remaining employers have an increased incentive to also withdraw." Id.

To address this risk, Congress amended ERISA by enacting the Multiemployer Pension Plan Amendments Act of 1980 (the "MPPAA"). C&S Wholesale, 802 F.3d at 536-37 (citation omitted). The MPPAA provides that "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." Id. at 537. Section 1391(c)(3) "provides the formula with which a plan's actuaries are to calculate the amount of this liability." Id.

Under the MPPAA, an employer can satisfy its entire withdrawal liability by, among other things, "amortiz[ing] the debt in equal annual payments[.]" Id. Section 1399(c)(1)(C)(i) provides the following two-part formula for calculating the amount of these annual payments:

[T]he 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.

29 U.S.C. § 1399(c)(1) (emphasis added).¹ The term "contribution base units" is generally understood to mean "the compensable or paid hours for which an employer contributes to the plan on behalf of its employees." C&S Wholesale, 802 F.3d at 537. The term "obligation to contribute" means an obligation "arising (1) under one or more collective bargaining (or related) agreements, or (2) as a result of a duty under applicable labor-management relations law." 29 U.S.C. § 1392(a).

In 2006, Congress further amended ERISA by enacting the Pension Protection Act (the "PPA"). The purpose of this amendment was "'to protect and restore multiemployer pension plans in danger of being unable to meet their pension distribution obligations in the near future.'" C&S Wholesale, 802 F.3d at 538 (quoting Trs. of the Local 138 Pension Tr. Fund v. F.W. Honerkamp Co., Inc., 692 F.3d 127, 130 (2d Cir. 2012)). Under the PPA, "a multiemployer pension plan that is less than 65 percent funded is in 'critical status.'" Id. The PPA "imposes anautomatic surcharge from 30 days after the employer has been notified that the plan is in critical status[.]" Id. (citing 29 U.S.C. § 1085(e)(7)). The surcharge is equal to five percent of the contributions required under the collective bargaining agreement ("CBA") in the first year and fixed at ten percent in subsequent years. Id. (citing 29 U.S.C. § 1085(e)(7)). The PPA 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)."² Id. (quoting 29 U.S.C. § 1085(e)(9)(B) (2008)).

In 2014, Congress passed the Multiemployer Pension Reform Act ("MPRA"). C&S Wholesale, 802 F.3d at 538. The MPRA amended § 1085, which now states that "automatic surcharges [shall] 'be disregarded in determining the allocation of unfunded vested benefits to an employer under [29 U.S.C. § 1391] and in determining the highest contribution rate under [29 U.S.C. § 1399(c)].'" Id. at 546 (quoting 29 U.S.C. § 1085(g)(2) (2014)).

II. FACTUAL AND PROCEDURAL HISTORY³

In 2016, WPAS completely withdrew from the Western States Office and Professional Employees Pension Fund (the "Fund"), a multiemployer pension plan subject to ERISA. (Roller Decl. Ex. A-1, at 2-3.) The CBA under which WPAS contributed to the Fund established an hourly contribution rate of $2.95 effective April 1, 2010, and the Fund had been in "criticalstatus," as defined by the PPA, since January 1, 2009. (Decl. Robert Miller Supp. of Pl.'s Mot. Summ. J. ("Miller Decl.") Ex. 1, at 19, ECF No. 15-1; Roller Decl. Ex. A-1, at 2; Miller Decl. Ex. 2, at 1.) As a result, WPAS paid a surcharge fixed at 10 percent of its contributions before withdrawing from the Fund. (See Roller Decl. Ex. A-3, at 18.)

After WPAS withdrew from the Fund, the Board calculated WPAS's withdrawal liability (i.e., the amount of unfunded vested benefits that WPAS owed under 29 U.S.C. § 1391(c)(3)). (Miller Decl. Ex. 3, at 1-24.) The parties do not dispute that the amount WPAS owes is $24,436,947. (See Miller Decl. Ex. 3, at 1, determining that WPAS's "total withdrawal liability is $24,436,947"; see also Def.'s Resp. & Cross-Mot. Summ. J. at 5, explaining that the Board "assessed WPAS's withdrawal liability in the amount of $24,436,947," and that the Board's "assessment of [WPAS's] withdrawal liability amount is not at issue in this case").

WPAS elected to make annual payments, and the Board calculated WPAS's annual payments using the formula provided by 29 U.S.C. § 1399(c)(1). (See Miller Decl. Ex. 3, at 20.) The Board used two figures to calculate WPAS's annual withdrawal liability payments. First, the Board used the average annual hours/contribution units in the highest three consecutive years during the ten years preceding WPAS's withdrawal (296,213).⁴ (Miller Decl. Ex. 3, at 20.) Second, the Board assessed WPAS's "highest contribution rate" by selecting WPAS's single highest hourly contribution rate under the CBA ($2.95 per hour) and adding the 10 percent surcharge that WPAS had been paying, which produced a total contribution rate of $3,245. (See Miller Decl. Ex. 3, at 20.) The Board's resulting calculation under 29 U.S.C. § 1399(c)(1) was an annual withdrawal liability payment of $961,211 (296,213 units multiplied by the $3,245 contribution rate). (Miller Decl. Ex. 3, at 20.)

WPAS disputed the Board's methodology to calculate its highest contribution rate. WPAS's position is that the Board should not have included the 10 percent surcharge in calculating its annual withdrawal liability payment. The parties submitted their dispute to an arbitrator, framed as follows:⁵

1. Whether in calculating WPAS's 'highest contribution rate at which the employer had an obligation to contribute under the plan' under ERISA . . . , [the Board] erred in including a 10% employer surcharge imposed under the [PPA].

2. If [the Board] is found to have erred in including a 10% employer surcharge in calculating the highest contribution rate, determination of the appropriate remedy.

(Roller Decl. Ex. A-1, at 2.)

The arbitrator found that the Board should not have included the 10 percent surcharge in calculating WPAS's annual withdrawal liability payment. (Roller Decl. Ex. B, at 1-10, Ex. C, at 1-11.) The arbitrator therefore granted WPAS's motion for summary judgment, denied the Board's cross-motion for summary judgment, and directed the Board to "recalculate WPAS's annual withdrawal liability payment using $2.95 per hour rather than $3.245 per hour as the highest contribution rate permitted under . . . 29 U.S.C. § 1399(c)(1)[.]" (Roller Decl. Ex. C, at 10.)

The Board timely filed the present action seeking to vacate the arbitrator's award. See 29 U.S.C. § 1401(b)(2) ("Upon completion of the arbitration proceedings in favor of one of the parties, any party thereto may bring an action . . . in an appropriate United States district court in accordance with section 1451 of this title to enforce, vacate, or modify the arbitrator's award.").

ANALYSIS

I. STANDARD OF REVIEW

"The clear authorization of 29 U.S.C. § 1401(b)(2) for judicial review 'to enforce, vacate, or modify the...