Local 53 wins $1.9 million pension contribution settlement

The HFIAW Local 53 (New Orleans) Pension Fund was the big winner in a recent lawsuit filed against an employer.

Three years ago, Local 53 Business Manager and Pension Board of Trustees Chairman Kristopher Comeaux attended his first International Foundation of Employee Benefit Plans conference.

The International Foundation holds an Annual Employee Benefits Conference offering over 100 sessions providing 32,000 members the opportunity to learn more about the financial and research-based information related to the employee benefits community.

One of the sessions was led by Tucker|Arensberg Attorneys Shareholder, Board of Directors Member and head of the ERISA Litigation Group Neil J. Gregorio. He was presenting with the International Foundation on withdrawal liability, ERISA collections and bankruptcy claims.

By chance, Brother Comeaux was in Gregorio’s session, which highlighted and focused on the Building and Construction Industry Exemption.

“One of the main points of the presentation was that failing to understand ERISA’s Building and Construction Industry Exemption to withdrawal liability causes many multiemployer pension funds to never assert viable claims against withdrawn employers,” Gregorio said.

The Employee Retirement Income Security Act (ERISA) of 1974 is a federal U.S. tax and labor law that establishes minimum standards for pension plans in private industry. It contains rules on the federal income tax effects of transactions associated with employee benefit plans.

ERISA includes special withdrawal liability rules for qualifying employers in certain industries, including the building and construction industry. If the Building and Construction Industry Exemption applies, the withdrawing employer generally owes nothing to the fund.

“The test for whether an employer qualifies for the exemption often depends on whether the employer can show that ‘substantially all the employees with respect to whom the employer has an obligation to contribute under the plan perform work in the building and construction industry,” said Gregorio.

By its plan terms, this requirement is a difficult standard for an employer to satisfy. The phrase “substantially all” is generally understood to mean at least 85 percent and the phrase “building and construction industry” is narrowly construed by courts and arbitrators.

For work to be considered in the building and construction industry, it usually must involve combining materials and constituent parts on a construction site to form, make or build a structure. In other words, the work must take place at a construction site, and it must create or be done on something that is permanently affixed to the land.

Some examples of work that does not count as being in the building and construction industry are the manufacturing and fabrication of construction materials in a shop (all shop work), driving ready mixed concrete or other construction materials to and from the site, repairing locomotives (regardless of whether such work is in the field or in a shop), building and repairing ships (again regardless of whether such work is in the field or in a shop) and assembling and disassembling booths and stages at convention centers (temporary structures).

“Pension funds and/or employers often assume that employers are entitled to the exemption simply because their overall business is in the building and construction industry, but that is irrelevant,” Gregorio said. “Rather than focusing on an employer’s business operations in general, ERISA’s test focuses on the work of the employees for whom the employer submits contributions to the fund.”

Consequently, Local 53 investigated an employer who withdrew from the Local 53 Pension Fund in 2018 that was never assessed for withdrawal liability.

Eventually, the Local 53 Pension Fund hired Gregorio. Within a short period of time, he confirmed the Pension Fund had a viable claim, and the employer was assessed for a withdrawal liability of $1,984,040.

The employer challenged the assessment alleging that the Building and Construction Industry Exemption applied. Although the employer had some covered field work, it also employed Local 53 members who performed work that is not treated as Building and Construction Industry Work under ERISA.

“For example, the employer performed maritime work (work on ships). Maritime work is not considered Building and Construction Industry Work under ERISA,” Gregorio added. “The covered work also included insulation work on large machinery while it was still on skids. After the insulation work was completed, the large machinery would be loaded on trucks and then driven to the end customers’ locations where such machinery was permanently installed on the properties. The insulation work on this machinery while still on skids is also not treated as Building and Construction Industry Work under ERISA because the machinery was not permanently affixed to land at the time of the covered work.”

Ultimately, due to the strength of the Pension Fund’s case, it did not go to arbitration, and they settled for just under $2 million before any substantial legal fees were incurred.

Thank you to Brother Comeaux for recognizing the situation and following through in order to ensure valuable assets remain in your Local Union and Pension Fund.