Seyfarth Synopsis: The IRS recently sought to reassure employers that they will not jeopardize their retirement plan’s tax qualified status if they permit employees who have a bona fide separation from service to take a distribution from their retirement plan, even if they are rehired shortly thereafter by the same employer. The reassurance comes in the form of two FAQs that address COVID-related labor shortages and in-service distribution rules.

To maintain tax-qualification, retirement plans are required to limit a participant’s ability to take a distribution of their plan benefit while still working. However, and subject to controlled group rules that aggregate related employers, distributions are allowed once the participant leaves employment (separates from service) with the employer sponsoring the plan. In order to prevent “sham” separations (and commensurate benefit distributions), the IRS requires that the separation be “bona fide.”

Many employers have been and continue to be experiencing significant labor shortages as a consequence of the COVID-19 pandemic, and are looking to rehire employees who had previously separated from service and received or commenced to receive a distribution of their retirement benefits. The practice of rehiring former employees could be problematic based on existing IRS guidance if there were no bona fide retirement or separation at the time of initial employment termination. This could occur, for example, if an employer has agreed to rehire an employee at the time of the employee’s “retirement” or other separation from service.

In an effort to remind and reassure employers, the FAQs reiterate the IRS’s position that:

  • The determination of whether an individual’s retirement or separation from service is bona fide for retirement plan purposes is based on a facts and circumstances analysis (in the absence of plan terms specifying the conditions under which a retirement or other separation from service will be considered bona fide); and
  • A rehire due to unforeseen circumstances (such as COVID-related labor shortages) that do not reflect any prearrangement to rehire the individual will not cause the individual’s prior retirement or separation from service to no longer be considered “bona fide” under the plan.

The FAQs also remind employers that under the SECURE Act, defined benefit pension plans can be amended to allow in-service distributions to employees who have attained age 59 1/2. This change aligned the minimum age for in-service distributions under defined benefit pension plans with the existing age 59 1/2 in-service distribution rules for defined contribution plans (e.g., 401(k) and 403(b) plans).

While the new FAQs do not relax or otherwise modify existing IRS guidance relating to rehires and bona fide retirements/separations, they serve as a helpful reminder to sponsors of qualified retirement plans. Plan sponsors who wish to rehire a retired or previously separated employee to fill an unforeseen hiring need should first ascertain that the employee’s prior retirement/separation was bona fide and there was no previous agreement to rehire the employee.

This unforeseen need may arise as a result of the COVID-19 pandemic, or otherwise in the ordinary course of business. Also, plan sponsors should be mindful of plan terms that affect rehires and distributions. For example, plan sponsors should review any plan terms requiring that an individual who retires or otherwise separates from service and commences benefit distributions not be rehired within a specified period, any plan terms relating to the suspension of distributions upon rehire, and any other plan terms that may have an impact on the retirement benefit of a rehire.

If you have any questions or concerns about rehiring of a previously retired or separated employee, please contact your Seyfarth attorney.



Seyfarth Synopsis: For those of you following the saga of ERISA’s fiduciary duties and ESG investing, we are nearing a possible finish line. The latest turn in the saga came when the DOL issued a new set of proposed regulations this month. The approach taken by the DOL comes as no surprise. Looking at the broader ESG shifts in the regulatory environment, the DOL regulations create a symmetry with SEC activities under Gary Gensler’s helm as the SEC’s taken a very vocal approach on the role of ESG factors in an investor’s ability to assess the value of an investment. We further discuss the evolution of the market’s approach to ESG factors in our four-part series you can access here.

The Road to the Latest Swing

Avid subscribers to Beneficially Yours may recall where we started in June 2020 when the DOL issued proposed regulations addressing how ERISA fiduciaries should evaluate an investment or investment strategy based on environmental, social or governance (ESG) factors. Summarized here and here, that guidance indicated that ERISA fiduciaries should focus on pecuniary factors when evaluating an investment or investment strategy, and it cast doubt on whether ESG factors would meet that standard.

The DOL pushed that further in August 2020 with proposed rules described here on a fiduciary responsibility when exercising shareholder rights (including voting proxies) for the plan’s assets. When these rules were finalized and published in November and December 2020 (discussed here and here), they indicated that plan fiduciaries must evaluate investments and investment strategies based solely on pecuniary factors, made it clear that, in DOL’s eyes, ESG factors are not pecuniary in nature, and severely restricted fiduciaries’ ability to vote proxies for the plan’s assets. The new Administration sidelined those 2020 regulations (discussed here), and in March 2021, the DOL announced that it would not enforce those regulations.

The New Proposal’s Approach

Staying grounded in ERISA’s fiduciary duties of loyalty and prudence, the new proposed rules recognize the evolving importance of ESG factors when investing. While the DOL still emphasizes the importance of the risk-return analysis of a proposed investment, the proposal is clear that such an analysis may require evaluating the potential economic effects of climate change and other ESG factors on the proposed investment. This echoes the SEC’s views on ESG. The proposal also specifically permits ESG factors as a material consideration for plan fiduciaries. The DOL explains that “a fiduciary may consider any factor material to the risk-return analysis, including climate change and other ESG factors. … [M]aterial climate change and other ESG factors are no different than other ‘traditional’ material risk-return factors … .” Thus, under ERISA, if a fiduciary prudently concludes that a climate change or other ESG factor is material to an investment or investment course of action under consideration, the fiduciary can and should consider it and act accordingly, as would be the case with respect to any material risk-return factor.”

To demonstrate the potential economic materiality of these factors, the provision lays out examples in each of the E, S and G areas. On the environmental side, the DOL noted that climate change is already imposing significant economic consequences on businesses resulting from, for example, extreme weather damage to physical assets and disruption of business productivity and supply chains. The DOL also noted that proposed governmental regulations and policies (for example, to address green-house gas emissions, and to shift away from carbon intensive investments) could impact an entity’s value. Because pension plans have long term investment horizons, the expected effects of climate change is especially pertinent to the plans’ projected returns.

The DOL noted that governance factors involving board composition, executive compensation practices, corporate decision-making and compliance are also potential material considerations when evaluating an investment. Similarly, workforce diversity and inclusion, training and labor relations could be material factors. The proposed rule acknowledges that financial risk resulting from each of these areas can have a significant impact on reducing volatility and mitigating long term risks to plan assets and should be taken into consideration when selecting investments and investment strategy.

Key Changes

Tie-Break Standard Remains with a Clarification. The proposed rules do retain an element of the old tie-breaking standards, but clarify that a fiduciary is not prohibited from selecting an investment due to any collateral benefits other than investment returns — which was perceived under the 2020 regulations as targeting ESG factors. However, if collateral factors (for example, the ESG factors) tipped the scale in favor of including an investment option in the investment line-up of a participant-directed defined contribution plan, the fiduciaries must ensure that those collateral factors are prominently displayed in the disclosures provided to participants.

Record-keeping and Disclosure Requirements. The proposal also eliminates the special documentation requirement when the fiduciary has concluded pecuniary factors alone were insufficient to make a decision. The prosed rules recognized that such a requirement was not necessary given the existing fiduciary obligations, which are commonly understood to include documenting fiduciary decisions.

QDIAs are a Go. The proposed rules also eliminate the prohibition on ERISA fiduciaries designating investments that use ESG metrics as a plan’s QDIA, as long as those funds otherwise meet the standards.

Proxy Rules Have Give. The proposed rules also address the exercising of shareholder rights (including proxy voting) aspects of the 2020 regulations. The new proposed rules emphasize that the fiduciary duty to manage plan assets includes exercising the shareholder rights associated with those assets, and fiduciaries should conscientiously exercise those rights to protect the interests of the plan participants. As a result, fiduciaries should weigh the cost and effort of voting proxies against the significance of the issue to the plan, and apply the general fiduciary principles.

The proposal eliminates several provisions that were couched as “safe harbors” in the current rule based on the DOL’s concern that they were being construed as permission for fiduciaries to abstain from voting proxy without properly considering the plan’s interests as a shareholder. In addition, the proposed rule prohibits a fiduciary from following the recommendations of a proxy advisory firm or other service provider unless the fiduciary determines that its proxy voting guidelines are consistent with the guidance in the proposal.


If you would like to discuss how these proposed rules could impact you, contact your Seyfarth Shaw employee benefits attorney. If you would like to comment on the proposal, your comments must be summited to the DOL by December 13, 2021.

On Tuesday, November 16, 2021, from 9:00 a.m. to 5:30 p.m. ET, Seyfarth attorneys Howard Pianko and Linda J. Haynes, along with a slate of other experienced ERISA practitioners in the area of plan investments, will share their insights a the Practicing Law Institute’s “Pension Plan Investments 2021: Advanced Perspectives.” Howard is a co-chair for the program and Linda will present the “Plan Administration” panel.

The ongoing evolution in ERISA statutory and regulatory issues ensures a full agenda for the panelists to explore and analyze. In this environment, it is important for practitioners to stay informed with respect to these regulatory, as well as case law, changes. In this program, experienced ERISA practitioners in the area of plan investments will provide their perspectives, and share their substantive knowledge, on recent structural and legal developments in this space. This conference also is an essential venue for learning about new plan investment products, market practices, regulatory litigation developments as well as considerations for financial institutions that transact with, or provide services or products to plan investors.

Find more information and register for this program here.

By: Mark Casciari and Michael Cederoth

Seyfarth Synopsis: If an ERISA plaintiff establishes a fiduciary breach, expect the computation of damages to be a complicated process that may enhance damages through judgment.  And a court judgment in complicated cases can take years to issue.  This is the lesson from a recent decision of the Court of Appeals for the Second Circuit.

Browe v. CTC Corporation, 2021 WL 4449878 (2d Cir. 9/29/21) is a complex ERISA case, both procedurally and substantively. This article focuses on the portion of the ruling that relates to the calculation of fiduciary breach damages. This is because the computation of ERISA fiduciary breach damages is central to successful discovery and settlement negotiations.

In Browe, former employees and officers of a defunct corporation asserted ERISA claims against the corporation and its former CEO for mismanagement of the firm’s deferred compensation plan. The controversy arose from a decision to terminate the Plan and use its funds to pay business operating expenses. The district court found in favor of plaintiffs and awarded damages based on the projected account balances as of Plan termination, after rejecting plaintiffs’ assertion that ERISA required restoration of Plan losses through judgment.

The Second Circuit overturned the restoration award.  It found that the Plan was improperly terminated — so it was not terminated at all. The Court then held that ERISA required that the award “return the participants to the position they would have occupied” but for this fiduciary breach. This included all losses, including unrealized gains, through the date of judgment. It remanded the case back to the district court for recalculation of award to capture losses through the date of judgment.

Citing to Donovan v. Bierwirth, 754 F.2d 1049 (2d Cir. 1985), the Court instructed that the award be based on the assumption that Plan funds were prudently invested, with the caveat that if several investment strategies were equally plausible, the district court should presume that the funds would have been invested in the most profitable of various options. The Court added that uncertainties in fixing damages must be resolved against the breaching fiduciary.

Damage Computation Takeaway – By computing damages for a fiduciary breach through judgment, the Court is advising fiduciary breach litigants that there will be a battle of the experts in determining what investment likely “would have happened.”  If a fiduciary breach case survives a motion to dismiss, expect complicated and expensive expert damage discovery that serve to inflate settlement demands.

By: Tom Horan, Ian Morrison, and Sam Schwartz-Fenwick

Seyfarth Synopsis: Recognizing that the Plan contained an unambiguous arbitration  provision, and that “ERISA claims are generally arbitrable,” the Seventh Circuit Court of Appeals nonetheless found that arbitration could not be compelled where the provision prospectively barred the plaintiff from pursuing certain statutory remedies.

In Smith v. Bd. of Dirs. of Triad Mfg., Inc., a Plan participant brought a putative class action suit asserting that the Plan’s fiduciaries breached their fiduciary duties and engaged in prohibited transactions in connection with the sale of all of the Plan sponsor’s stock to the Plan. Within two weeks of the transaction, the shares’ ostensible value dropped from $106 million to less than $4 million.

After the stock transaction—but before the suit was filed—the Plan sponsor amended the Plan to add an arbitration provision with a class action waiver. The provision prohibited an individual from bringing claims in anything other than an individual capacity, and further stated that an individual could not “seek or receive any remedy which has the purpose or effect of providing . . . relief to any [person] other than the Claimant.”

Based on this language, the Plan moved to compel individual arbitration of Plaintiff’s suit. The district court denied the motion. On appeal, the Seventh Circuit stated it was guided by the “liberal federal policy favoring arbitration agreements,” but nonetheless affirmed the decision of the district court, based on the “effective vindication” exception to the FAA. This exception invalidates arbitration agreements that operate as prospective waivers of a party’s right to pursue statutory remedies. Here, the plaintiff sought a variety of equitable remedies—including the potential removal of the Plan’s trustee—which would inescapably have had the effect of providing relief to individuals beyond the Plaintiff. As such, Plaintiff’s requested relief was impermissibly in conflict with the Plan’s arbitration provision.

The Seventh Circuit stated that its holding is limited to the language of the arbitration provision at issue, and that it was not deciding whether a claimant could be bound by an amendment enacted after his employment ended, or whether a plan sponsor can unilaterally amend a plan to require arbitration as to all participants. The Court was also quick to say that it did not view its decision as creating conflict with the Ninth Circuit’s holding in Dorman v. Charles Schwab Corp. (discussed here), in which that court held a that an ERISA plan’s mandatory arbitration and class action waiver provision was enforceable, and could require individualized arbitration of fiduciary breach claims. Still, the tension between the Seventh Circuit’s holding in Smith and the Ninth’s in Dorman—together with the Supreme Court’s repeated statements encouraging enforcement of arbitration provisions—has already lead to speculation that a petition for certiorari will be filed.

Thus, while the Seventh Circuit in Smith stated that ERISA claims are generally arbitrable, Smith leaves open many questions about the proper scope of such provisions and how those provisions (to the extent they are enforceable) will shape ensuing arbitration and litigation. Stay tuned as we continue to track this evolving area of the law.

Seyfarth Synopsis: As employers continue to struggle with strategies for safely re-opening their workplaces, we have previously discussed the possibility of mandating a vaccine or providing incentives for getting the vaccine. [Here] As employers shift their focus toward the cost of COVID hospitalizations (which studies show are a much greater risk for unvaccinated individuals), employers are increasingly considering imposing a premium differential between vaccinated and unvaccinated covered participants. Imposing such a premium differential is doable, but likely creates a group health plan wellness program, which implicates both HIPAA (under rules issued by HHS), and the ADA and GINA (governed by the EEOC) wellness program rules.

There are myriad intricacies to consider when setting up a wellness program. We will hit some of the highlights here:

HIPAA Wellness Programs

HIPAA’s rules divide the world of wellness programs into two main categories:

  1. Participation-only programs. These are programs that do not require any conditions for receiving a reward and have very few requirements associated with them, except that they must be available to all similarly-situated individuals.
  2. Health-contingent programs. These are programs that base rewards on satisfying a standard related to a health factor, which are further subdivided into

(i) activity-only, and

(ii) outcomes-based programs

While at first blush it may seem like getting a vaccine is participation-only as a person simply needs to get the shot, and does not need to remain free from COVID-19, there is some thought that it may actually be health-contingent because not everyone can get the vaccine due to underlying health conditions.

Most practitioners do not believe such a program is a health-contingent “outcomes-based” program, as the reward does not depend on staying COVID-19-free. However, at least one consultant has taken the position that this type of program could even be outcomes-based if having simply received the vaccine is considered a “health status.”

Although HHS has not provided any direct guidance here, we think it is more likely that such a program would be a health-contingent “activity-only” program. In general, a health-contingent activity-only wellness program must meet the following requirements:

  • Incentive Limit:
    • Limit the incentive to 30% of the cost of coverage (this limit is increased to 50% if the program includes a tobacco cessation component);
    • The limit is based on the overall cost of coverage — i.e., the COBRA rate — applicable to the value of coverage elected — i.e., self-only, family, etc.;
    •  This incentive would need to be combined with any other “health contingent” wellness program offered under the plan when determining whether the incentives exceed the limit (except that if any incentive is linked to smoker status, the limit is increased to 50%)
  • Reasonable Alternative
    •  A reasonable alternative must be offered to persons who cannot get vaccinated because it is medically inadvisable or, as a result of the overlay of Title VII, due to a sincerely held religious belief.
    • Participants must be notified of the availability of the reasonable alternative in all materials substantially describing the program.
  • Annual Opportunity to Qualify:
    • Provide an opportunity to qualify for the reward at least once per year
  •  Be uniformly available to all similarly situated individuals; and
  •  Not be a subterfuge for discrimination.

(Note: There are additional requirements for health contingent wellness programs that are outcomes-based programs.)

EEOC and the ADA

The EEOC has modified its wellness program rules a few different times in the last few months. Ultimately, we read the current loosening of the EEOC’s wellness program rules as the administration’s attempt to not discourage incentives.

If the wellness program is for a health-contingent activity-only program, the EEOC is okay if the plan meets the HIPAA/HHS standards. (The new EEOC wellness program rules will also allow an incentive for participatory programs that is not overly large (i.e., considered coercive).)

Similarly, recent EEOC guidance has indicated that vaccine status alone is not a “medical exam or disability-related inquiry” under the ADA. So, if an employer simply requests proof of vaccination status but does not require the employee to get the vaccine directly from the employer (or its contractor), the program is arguably outside of the scope of the EEOC’s wellness guidelines entirely.

Affordable Care Act

For ACA purposes, if the “incentive” is structured as an increased premium, the employer must treat all employees as if they failed to get vaccinated and were required to pay the increased amount for purposes of determining the affordability of coverage, regardless of whether that’s the case. However, there are ways for plan sponsors to mitigate this concern. For instance, the employer could design its “penalty” as a deductible increase rather than a premium increase, which would not impact affordability. (It would impact minimum value, but the employer likely has more flexibility there.) Similarly, because the ACA only requires that employers offer one affordable option, the employer could link the incentive only to its higher-cost benefit options (leaving untouched its lower-cost, “affordable” option.)

*     *     *

While beyond the scope of this legal update, employers should also be cautious of how they structure the program considering collective bargaining obligations, HIPAA privacy concerns and Section 125 requirements (for mid-year implementations). We will continue to monitor trends in this space with an eye toward any agency indications as to whether they intend to regulate these types of programs.

On July 26, 2021, the U.S. Internal Revenue Service (“IRS”) issued Notice 2021-46, providing additional guidance on the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and premium assistance and tax credit provisions of the American Rescue Plan Act of 2021 (“ARPA”). As described in our Legal Update , ARPA requires employers to cover 100% of the cost of continuing group health coverage under COBRA from April 1, 2021 through September 30, 2021 for assistance eligible individuals (i.e., individuals who lose coverage due to an involuntary termination of employment or reduction of hours ). On May 18, 2021, the IRS issued guidance in IRS Notice 2021-31 as we described in our prior blog post to provide clarification for employers, plan administrators, and health insurers regarding this subsidy. Notice 2021-46 expands on that guidance.

The key points from IRS Notice 2021-46 are summarized below.

How Does the Subsidy Apply to Assistance Eligible Individuals Who Are Entitled To Extended Coverage Periods?

Notice 2021-46 clarifies that assistance eligible individuals may be entitled to the COBRA subsidy for extended coverage periods (e.g., disability extensions, second qualifying events or an extension under State mini-COBRA laws), even if the assistance eligible individual didn’t elect extended coverage before April 1, 2021.

The Notice provides an example of an individual who is involuntarily terminated and elects COBRA continuation coverage effective October 1, 2019. The individual’s 18-month COBRA continuation period would have lapsed March 31, 2021. However, on March 1, 2020, a disability determination letter was issued by the Social Security Administration providing that the individual was disabled as of November 1, 2019. This disability determination entitles the individual to the 29-month extended COBRA continuation coverage, but the individual failed to notify the plan of the disability determination by April 30, 2020, which is 60 days after the date of the issuance of the disability determination letter (as would normally be required to qualify for the COBRA disability extension period). However, under the EBSA Disaster Relief Notices 2020-01 and 2021-01, the individual has one year and 60 days from the issuance of the disability determination letter to notify the plan of the disability to extend COBRA continuation coverage. On April 10, 2021, the individual notifies the plan of the disability and elects ongoing COBRA coverage from April 1, 2021. Assuming the individual is not eligible for other disqualifying group health plan coverage or Medicare, the individual is an assistance eligible individual and is entitled to the COBRA premium assistance.

Does Eligibility For Other Health Coverage That Does Not Include Vision or Dental Benefits Terminate an Assistance Eligible Individual’s Eligibility For the COBRA Subsidy for Vision-Only or Dental-Only Coverage?

Yes. Eligibility for the COBRA premium assistance ends when the Assistance Eligible Individual becomes eligible for coverage under any other disqualifying group health plan or Medicare, even if the other coverage does not include all of the benefits provided by the COBRA coverage.

Which Entity May Claim the Tax Credit For the COBRA Subsidy?

Where a group health plan (other than a multiemployer plan) subject to COBRA covers employees of two or more employers, each common-law employer is generally treated as the premium payee entitled to claim the premium assistance tax credit with respect its own employees and former employees, even where such common-law employers are part of a controlled group.

The Notice also clarifies that an entity that provides health benefits to employees of another entity, but is not a third-party payer of their wages, will not be treated as a third-party payer for purposes of applying Notice 2021-31. For example, if a group health plan covers employees of two or more unrelated employers in a multiple employer welfare arrangement (“MEWA”), the entity entitled to claim the tax credit is generally the common law employer; the association that sponsors the MEWA is not entitled to claim the tax credit for the COBRA subsidy.

Reminder: Tell Participants that the Subsidy Period is Ending

As we mentioned in our previous Legal Update, ARPA requires plan sponsors to notify participants 15-45 days before their COBRA subsidy ends. Participants will need to be informed (i) when their subsidy ends, and (ii) how much their non-subsidized COBRA premium will be. Employers may already have sent this notice on a “one-off” basis to COBRA qualified beneficiaries whose 18 or 36 months of COBRA coverage has ended or will end before September 30th. However, the subsidy will expire on September 30, 2021 for all COBRA qualified beneficiaries (even if they may still have time remaining in their 18 or 36 month COBRA period); thus, employers may need to do one last bulk mailing. The mailing needs to go out any time between August 16, 2021 and September 15, 2021. The Department of Labor’s model notice is here.

Please contact Irine Sorser ([email protected]), Kelly Pointer ([email protected]) or any member of Seyfarth’s Employee Benefits Group if you would like further information about these updates.

By: Mark Casciari and Michael Cederoth

Seyfarth Synopsis: The Court of Appeals for the Ninth Circuit recently rejected the application of the doctrine of equitable estoppel to prevent a plan trustee from enforcing the clear terms of the plan.  So, it bears repeating that drafters of ERISA plans are well advised to draft as clearly and carefully as possible.

In Wong v. Flynn-Kerper, 999 F.3d 1205 (9th Cir. 2021), an ESOP trustee sued to enforce the terms of the Plan. The operative Plan terms mandated that the Plan not pay more than fair market value for company stock, as determined at the time of the transaction by an independent appraiser. The Plan sought revision of a transaction where the Plan had promised to pay for stock, by alleging that the stock was overvalued.  The Plan claimed that the independent appraiser was unaware that the Plan sponsor was carrying substantial uncollectable debt and facing mounting attorney’s fees and administrative penalties.

The defendant holder of the promissory note attempted to invoke the doctrine of equitable estoppel to dismiss the claim, relying on a side agreement between the defendant and the trustee that affirmed an obligation to pay for the stock even if overvalued. The defendant thus argued that the Plan was equitably estopped from reducing the value of the note. The district court agreed and granted the defendant’s motion to dismiss.  The Ninth Circuit reversed, holding that the doctrine of equitable estoppel could not be invoked against an ERISA plan trustee to contradict the terms of the plan. Allowing the terms of the side agreement to prevail, the court stated, would plainly violate those Plan terms mandating that the Plan not pay more than fair market value. The Ninth Circuit thus joined the Fourth Circuit in barring the defensive use of equitable estoppel to contradict an ERISA plan’s express terms. See Ret. Comm. of DAK Ams. LLC v. Brewer, 867 F.3d 471 (4th Cir. 2017).

We note as well that the Ninth Circuit did not apply a wholesale ban on the application of equitable estoppel in ERISA actions.  Rather, the court said that equitable estoppel could apply if,  in addition to meeting the traditional elements of equitable estoppel, a party established (1) extraordinary circumstances, (2) that the provisions of the plan are ambiguous, and (3) that the representations made about the plan were an interpretation, and not a modification, of the plan.

Takeaway — We have previously discussed the importance of careful drafting of ERISA plans. See here and here. That admonition bears repeating. As the Supreme Court has stated:  “The plan, in short, is at the center of ERISA.” See US Airways, Inc. v. McCutchen, 569 U. S. 88 (2013). And even the Ninth Circuit agrees in Wong v. Flynn-Kerper.

Friday, July 30, 2021
2:00 p.m. to 3:30 p.m. Eastern
1:00 p.m. to 2:30 p.m. Central
12:00 p.m. to 1:30 p.m. Mountain
11:00 a.m. to 12:30 p.m. Pacific

On July 9, 2021, the PBGC issued its interim final rule on ARPA’s Special Financial Assistance (“SFA”) Program for financially troubled multiemployer pension plans.  The new regulations provide guidance on the application process for Special Financial Assistance and the related restrictions and requirements, including the priority in which applications will be reviewed.  The guidance also sets forth special rules regarding employer withdrawals and withdrawal liability settlements for plans receiving Special Financial Assistance.

In this webinar, Seyfarth attorneys review the interim final rule, address what it means for multiemployer plans, and discuss what it means for employers participating in those plans.

Topics will include:

  • Plan eligibility;
  • The amount of SFA;
  • The application process;
  • Conditions and restrictions on receipt of SFA, including limitations on reductions in contributions and increases in benefits, and investment restrictions;
  • Withdrawal liability considerations; and
  • What’s Next

Register Here

By: Mark Casciari, Tom Horan, and James Nasiri

Seyfarth Synopsis: In a recent decision highlighting the potential for far-reaching responsibility for withdrawal liability payments, the Court of Appeals for the Seventh Circuit affirmed a judgment against two individuals contending that their ownership interest in the contributing company’s principal place of business was a purely passive investment.

In February 2018, a trucking company ceased all operations and withdrew from the Local 705 Teamsters Multi-Employer Pension Fund.  The fund sent the company, and the individuals who owned its principal place of business, a demand for payment of withdrawal liability.

The company and the individuals did not request review of the demand.  The fund then commenced litigation to collect on its demand.

The Seventh Circuit affirmed a judgment in favor of the fund and against the contributing company and individuals.  The decision is reported as Local 705 International Brotherhood of Teamsters Pension Fund v. Pitello, 2021 WL 2818326 (7th Cir. July 7, 2021).

The court explained that withdrawal liability extends to all “trades or businesses” under common control with the withdrawing employer, on a joint and several liability basis.  The court said that joint and several liability does not extend, however, to parties with purely “passive or personal investments.”

The individuals argued that their ownership of the at-issue property should not be deemed a trade or business because they: (1) never received any rent or tax benefits as a result of the company’s use of the property, (2) purchased the property 18 years earlier and held it purely as an investment, (3) did not lease it to anyone after the company ceased operations, and (4) never employed anyone to manage the property.

The court found that another company the individuals owned did charge rent for the property after the contributing company ceased operations.  The court thus reasoned that “whatever value the[y] received through their rent-free arrangement with [the company] had been lost,” and the decision to generate replacement rental income thereafter made clear that their ownership of the property was a business venture.

Moving forward, this decision should serve as a reminder that courts are willing to entertain expansive definitions of who may be jointly and severally liable for withdrawal liability. See our articles that address the complexity of judicial review on the scope of liability.  No Partnership, No Common Control, No Withdrawal Liability: Private Equity Funds Not Liable for Portfolio Company’s Multiemployer Plan Withdrawal Liability | Beneficially Yours and The Ninth Circuit Hammers Out A New Successorship Liability Test Under The MPPAA | Beneficially Yours.  All companies and individuals in this space also should become familiar with the PBGC’s interim final rule on the Special Financial Assistance provisions of the American Rescue Plan Act, which sets forth rules on employer withdrawals and withdrawal liability settlements.  See PBGC Issues Much Anticipated Interim Final Rule on Special Financial Assistance Under American Rescue Plan Act | Beneficially Yours.