Central States Explores Withdrawal Liability Alternatives

For years Central States has been coming under increasing pressure from both employers and Teamsters to address its funding problems and increasing withdrawal liability.

Recently, Central States began exploring more creative alternatives to address these problems.  On March 30, 2011, Central States announced a second initiative aimed at both allowing employers to address their increasing withdrawal liability and at persuading new employers that they can safely join Central States without risking substantial withdrawal liability.

Central States is examining a hybrid approach to calculating employers’ withdrawal liability.  Under the current model, employers are liable for withdrawal liability equal to their proportional share of the level of unfunded vested benefits for the entire Fund.  This means that employers are liable not only for withdrawal liability related to their employees, but also for employees of other employers who did not satisfy their withdrawal liability.

Subject to approval by the Pension Benefit Guaranty Corporation, Central States is considering adopting a hybrid approach where the withdrawal liability for certain employers would be based only on the level of unfunded vested benefits directly attributed to their own employees.  This “direct attribution” method of calculating withdrawal liability could substantially reduce employers’ total withdrawal liability by freeing employers from the obligation to pay for the withdrawal liability of unrelated companies.

The hitch in Central States’ current proposal relating to direct attribution is that it would only apply to employers either:

1)    entering the fund for their first time (“new employers”); or
2)    existing employers who pay their current withdrawal liability, but decide to stay in the Fund.

Central States’ Fact Sheet on this development can be found here.  Please keep in mind that this is not a change in Central States’ method for calculating withdrawal liability—it is a potential change that Central States and the PBGC are currently evaluating.

This description is not legal advice.  Before an employer acts on this information, it should seek the advice of experienced labor/pension counsel.  If you have any questions, please contact Andy Martone at (314) 862-0608 or

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