By:  Charles M. Guzak, Ronald J. Kramer and Bryan M. O’Keefe

Seyfarth Synopsis: In these uncertain economic times, temporary furloughs and longer-term layoffs have become the norm.  One concern expressed by numerous unionized employers contributing to multiemployer pension plans is whether temporary furloughs or long-term layoffs may result in complete or partial withdrawal liability.

Employers are dealing with a number of immediate and challenging decisions due to COVID-19 and the respective state and local government closure orders. Unfortunately, in these uncertain economic times, temporary furloughs and long-term layoffs have become the norm.

One concern expressed by numerous unionized employers contributing to multiemployer pension plans is whether temporary furloughs or long-term layoffs may result in complete or partial withdrawal liability.

The short answer is that temporary furloughs or long-term layoffs in the wake of COVID-19 are not likely to trigger withdrawal liability of any type.   But as with most legal issues, the devil can be in the details.   Let’s examine the three principal types of withdrawal liability—partial withdrawal, complete withdrawal, and mass withdrawal—and consider how temporary furloughs or long-term layoffs triggered by COVID-19 may implicate each.

Partial Withdrawals

Partial withdrawal liability is the most relevant consideration to furloughs or layoffs.   A partial withdrawal occurs where there is (1) a “70-percent contribution decline” or (2) a “partial cessation of the employer’s contribution obligation.”

  1. 70% Contribution Decline

A 70% contribution decline at the end of a given fund plan year triggers withdrawal liability if the employer’s “contribution base units,” which are contributions based on employees’ hours worked, have declined by 70% for three consecutive plan years. Obviously, if employees are subject to a temporary furlough or even a layoff, the number of hours worked will decline.

But every year begins a new three-year testing period looking at participation levels compared to a “base year,” which is the average of the two highest years in the five plan years before the testing period. As such, an employer would have to already have had 70%+ declines in the past two consecutive years—during flush economic times—for a 70% contribution decline to trigger withdrawal liability now. Moreover, the 70% rule is a clear line in the sand.   For example, two years of a 75% decline and one year of a 69% decline will not trigger a partial withdrawal. So it would be very difficult to trigger a 70% decline partial withdrawal due to temporary reductions in contributions.

To be sure, some employers that were already struggling before COVID-19 and whose contributions over the last two years have dropped by more than 70% as compared to the established based year may have difficulty avoiding another 70% decline this year. And even for employers who were not suffering significant contribution declines before COVID-19, there is no guarantee that the recovery following the pandemic will be swift. Any employer suffering significant (50% plus) contribution declines due to lost business for any reason should closely monitor their prior, current and projected contributions using the statutory 70% decline testing methodology. Employers skirting the edge may wish to work hard to keep contributions high enough to avoid triggering a partial withdrawal.

  1. Partial Cessation of the Employer’s Contribution Obligation

A partial cessation of the employer’s contribution obligation has two further subtypes: so-called “facility take-outs” and “bargaining unit take-outs.”

A bargaining unit take-out occurs where an employer permanently ceases to have an obligation to contribute to one or more, but not all of the collective bargaining agreements under which it is required to contribute to the fund. And at the same time, the employer continues to perform work in the jurisdiction of the type for which it was making contributions were previously required under its collective bargaining agreement. A bargaining unit take-out may also occur where an employer transfers any bargaining unit work to workers not participating in the same fund at another or the same location it owns or controls. Importantly, a bargaining unit take-out will not occur where one operation is closed and the work is transferred to another location where it is still being performed by employees participating in the same fund.

A facility take-out occurs where an employer permanently ceases having an obligation to contribute to the plan for work performed at one or more, but not all, of its facilities covered under the CBA, but continues to perform the same type of work at the facilities. Put differently, if an employer ceased all operations covered by a collective bargaining agreement at one location and then continues to have any of that work done by employees not participating in the fund at a different facility, a partial withdrawal is triggered.

Triggering facility take-outs or bargaining unit take-outs through temporary furloughs or layoffs is unlikely to occur. However, to avoid these traps, employers should ensure that their obligations to contribute to funds under their CBAs and at each of their facilities continue. This can be achieved by continuing or merely temporarily suspending operations at all facilities covered by the plan, and by remaining a party to and complying with all CBAs covered by the plan. Also, it would be advisable to at least make sure the Union is aware that any reductions or suspension of operations at such facilities are temporary in nature. An employer may want to advise the fund as well, especially if all fund participating operations are temporarily suspended.

Complete Withdrawal

The second type of withdrawal is a complete withdrawal, which occurs when an employer permanently ceases all fund-covered operations or permanently ceases having an obligation to contribute to the fund. To that end, as long as the employer still has some fund participating employees actively employed somewhere under a contract, you cannot have a complete withdrawal from that fund. And, even if you lay off all employees that participated in a particular fund, if the layoffs are not intended to be permanent, you have likely not permanently ceased operations. Although ERISA does not specifically define “permanent,” Section 4218(b) of ERISA provides that “an employer shall not be considered to have withdrawn from a plan solely because…an employer suspends contributions under the plan during a labor dispute.” Based on this language, temporary cessation in contributions with planned or foreseeable end dates due to furloughs or layoffs, even of the entire workforce, should not constitute permanent cessations of contributions to a plan if they do not go on for so long they seem permanent.

The permanent cessation of an obligation to contribute to the fund typically only occurs where an employer is somehow able to get out of its collective bargaining agreement or negotiates an exit from the fund, the employees decertify, or the union disclaims interest. Employers cannot control what the employees or union does, but by far most withdrawals due to a cessation of an obligation to contribute are triggered by employers. One warning: There are special withdrawal rules for construction industry employers, under which a withdrawal is only triggered if an employer ceases having an obligation to contribute yet continues to perform work within the jurisdiction of the contract or resumes such work within five years without renewing its contractual obligation to contribute. Given most construction contracts are entered into pursuant to Section 8(f) of the NLRA, the expiration of such an agreement ends the bargaining relationship and any ongoing obligation to contribute. In this scenario, a construction union can trigger a withdrawal by ending the contract while the employer is in the midst of work it cannot immediately cease.

Mass Withdrawal

The final and least relevant type of withdrawal in this context is mass withdrawal. A mass withdrawal occurs when all employers or, pursuant to an agreement or arrangement, substantially all employers (the assumption is 85%) withdraw from a fund. Of course, by its very nature, a mass withdrawal is not in any one individual employer’s control. It also is very rare, especially outside of funds with very few participating employers. The risk of mass withdrawal, while very slight, arguably increases in bad economic times — in particular for funds in critical and declining status. Regardless of the hypothetical risk, this does not seem to be the type of consideration which should drive an individual employer’s furlough or layoff decision-making.


Employer contributions will of course decline during periods of temporary furloughs and layoffs, but unless that decline has been ongoing, or a permanent partial or complete withdrawal occurs, no withdrawal should be triggered. Employers should carefully monitor their participation in funds, and the potential withdrawal risks that may be triggered by permanent closures and layoffs, and avoid accidentally turning temporary reductions into permanent reductions without knowing the consequences.