Court Rejects Claim Of Insufficient Notice In ERISA Suit

Employer’s Failure To Timely Challenge Withdrawal Liability Waived Its Right To Object

Under the Multiemployer Pension Plan Amendments Act (MPPAA), an “estimate” of withdrawal liability, accompanied by a payment schedule and demand for payment, triggered an employer’s obligation to pay. It also triggered the running of the 90-day deadline for seeking review of the liability or challenging the sufficiency of notice, and the subsequent 60-day time limit for initiating arbitration. Retirement Plan of the National Retirement Fund v. Lackmann Culinary Services Inc., No. 7:10-cv-06316-VB, S.D.N.Y. (July 29, 2011).

Factual Background

On July 1, 2009, Lackmann Culinary Services (LCS) sold substantially all of its assets and stopped contributing to the Retirement Plan of the National Retirement Fund. On December 23, 2009, the Fund sent LCS a letter notifying it that the sale of its assets constituted a complete withdrawal and demanding payment of withdrawal liability in an “estimated” amount of $2,258,000. The letter included a payment schedule.

LCS did not make the first payment when due. The Fund informed the company that its withdrawal liability payments were delinquent and, if not cured within 60 days, it would be in default. LCS still did not pay. As a result, the Fund filed a complaint against LCS,
including a final withdrawal liability demand of $2,369,081.

LCS then sent the Fund a letter requesting review of the withdrawal liability calculation and arguing that the original letter from the Fund provided insufficient “notice” of its withdrawal liability under ERISA because it included only an estimate. The Fund responded that its letter constituted adequate notice of withdrawal liability and LCS’s request for review was too late. The Fund subsequently filed a motion for summary judgment, and LCS responded by demanding arbitration, disputing the sufficiency of the Fund’s notice as well as the revised increased withdrawal liability amount.

Legal Analysis

The primary issue before the court was whether the Fund’s notice of the “estimated” withdrawal liability was sufficient to trigger LCS’s obligation to pay and time limits for requesting review and initiating arbitration. ERISA Section 4219(b)(1) dictates the procedure for a plan sponsor of a multiem-ployer pension plan (i.e., the board of trustees) to notify employers of an assessment of withdrawal liability. It provides that as soon as practicable after an employer’s complete or partial withdrawal, the trustees must notify the employer of the amount of the liability and payment schedule, and demand payment in accordance with the schedule. After receiving a notice and demand for withdrawal liability, the employer has 90 days to request the trustees to review any matter relating to the withdrawal liability or payment schedule.

If the employer does not agree with the trustee’s determination on review, or if the trustees do not respond, the employer’s sole recourse under ERISA is to initiate arbitration. If the employer disputes either the sufficiency of the notice or the withdrawal liability itself, the employer may initiate arbitration, but must do so by the earlier of 60 days after the trustees notify the employer of their post-review decision, or 180 days after the employer requests review. If the employer misses either deadline, the trustees may enforce the fund’s withdrawal liability demand in federal court and the employer will be precluded from objecting to the liability amount or the sufficiency of the notice.

The court found that the Fund’s original letter satisfied the three statutory notice requirements because it included the amount of the withdrawal liability, a schedule for payments and a demand for payment. The court rejected the argument that an “estimated” liability was insufficient to put the employer on notice of the amount of the liability. The court held that the Fund had substantially complied with ERISA Section 4219(b)(1) when it submitted an “estimate” of LCS’s withdrawal liability in its original letter.

The court explained, “Due to the remedial purpose of ERISA and the MPPAA, the MPPAA’s notice requirements are liberally construed to protect pension plan participants.” The court further cited, “The MPPAA does not specify the form that this notification is to take, or mandate a particular template that it must conform to.” The Seventh Circuit Court of Appeals has previously taken the same position, applying the doctrine of substantial compliance to ERISA Section 4219 to hold that an “estimate” of withdrawal liability provides sufficient notice to the employer.

Practical Impact

According to Stephanie Smithey, a shareholder in Ogletree Deakins’ Indianapolis office, there are two “take-aways” from this decision. First, even a rough estimate of withdrawal liability can be sufficient to trigger the employer’s obligation to pay, as well as the timing for seeking review and initiating arbitration. Although a back-of-the-envelope estimate on a cocktail napkin probably isn’t sufficient, anything on fund letterhead with the estimated liability likely substantially complies with the law’s notice requirements, so long as it is accompanied by a payment schedule and demand for payment.

Second, if an employer questions the accuracy of the withdrawal liability amount or the sufficiency of the notice, the employer’s recourse is to request review by the fund within 90 days and, if not satisfied with the result, to timely demand arbitration. An employer should not sit on its hands hoping that the notice will be held insufficient or invalid, as the failure to timely object will result in a waiver of these arguments if the fund later sues to collect the withdrawal liability.