Individual Owners Who Rented Property to Employer Held Liable for Withdrawal Liability
A federal appeals court ruled that individuals who rent property to an employer may be liable for that company’s withdrawal liability. Generally, if an employer participates in a multiemployer pension plan and then stops contributing to the pension fund, that employer will have to pay to the fund a portion of any unfunded liability. The Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) provides rules to calculate this withdrawal liability, and to determine what entities may be held liable. Under the MPPAA, other “trades or businesses” that are under “common control” with the withdrawing employer are also responsible for this withdrawal liability.
The Seventh Circuit Court of Appeals, which covers Illinois , Indiana, and Wisconsin, recently addressed whether individual owners of a withdrawing employer may have to pay for a company’s withdrawal liability. In Central States Southeast and Southwest Areas Pension Fund et al. v. Messina Products LLC et al., the Court ruled that two individuals who owned the withdrawing corporation and leased property to the corporation were fully responsible for the corporation’s $3.1 million withdrawal liability.
The Court applied a two-part test to determine whether these individual owners should be treated as a “trade or business.” First, did they perform economic activity for the primary purpose of income or profit, and second, was that economic activity performed with continuity and regularity. The Court determined that because the individuals rented property to the withdrawing employer (as opposed to some unrelated third party) and because they were owners of the corporation, the rental was not a “passive investment,” and so the individuals constituted a trade or business under the MPPAA. As a result, the court held that these individuals were fully responsible for the withdrawal liability of the employer.
For more information about withdrawal liability and the MPPAA, contact your trust fund counsel.
By Daniel Brome | June 17, 2013