journal of pension planning & compliance - Kluwer Law International

JOURNAL OF
PENSION
PLANNING &
COMPLIANCE
Editor-in-Chief: Bruce J. McNeil, Esq.
VOLUME 37, NUMBER 1
SPRING 2011
• EDITOR’S NOTE ..................................iii
• WILL THE PENSION PROTECTION
ACT PROTECT DEFINED BENEFIT
PENSIONS? ...........................................1
Jonathan M. Furdek and
John J. Lucas
• SUMMARY OF CODE SECTION 415(M)
PLANS—QUALIFIED GOVERNMENTAL
EXCESS BENEFIT ARRANGEMENTS ........10
Terry A.M. Mumford
• ATTORNEY-CLIENT PRIVILEGE ISSUES
IN EMPLOYEE BENEFITS PRACTICE:
WHO IS THE CLIENT AND WHEN? ......17
Gwen Thayer Handelman
• MULTIEMPLOYER PENSION PLAN
WITHDRAWAL LIABILITY .....................45
Richard A. Naegele and
Kelly A. Means
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Editor-in-Chief
BRUCE J. MCNEIL
Editorial Advisory Board
PETER J. ALLMAN
Willkie Farr & Gallagher
New York, NY
MARK P. ALTIERI
Kent State University
Kent, OH
MICHAEL J. CANAN
Gray, Harris & Robinson, PA
Orlando, FL
THE HONORABLE
JOHN N. ERLENBORN
Issue, MD
CHARLES F. FELDMAN
Gibson, Dunn & Crutcher
New York, NY
STEVEN J. FRIEDMAN
Littler Mendelson
New York, NY
IRA M. GOLUB
Proskauer Rose LLP
New York, NY
GWEN THAYER
HANDELMAN
Scholar in Residence
Nova Southeastern University
Shepard Broad Law Center
Fort Lauderdale, FL
LAWRENCE J. HASS
Paul, Hastings, Janofsky &
Walker Washington, DC
LEONARD S. HIRSH
Ernst & Young
New York, NY
STEPHEN J. KRASS
Krass & Lund, PC
New York, NY
ALVIN D. LURIE, PC
New Rochelle, NY
KENT A. MASON
Davis & Harman, LLP
Washington, DC
LOUIS T. MAZAWEY
Groom Law Group
Washington, DC
DAVID A. MUSTONE
Hunton & Williams
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RICHARD A. NAEGELE
Wickens, Herzer, Panza,
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Lorain, OH
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Miller & Chevalier, Chartered
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PAMELA D. PERDUE
Summers, Compton, Wells &
Hamburg
St. Louis, MO
PATRICK J. PURCELL
Congressional Research Service
Library of Congress
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STEVEN J. SACHER
Jones Day
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Kirkpatrick & Lockhart LLP
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Sullivan & Cromwell
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CHARLES W. SHERMAN, JR.
Groom Law Group
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JOHN L. UTZ
Utz, Miller & Kuhn, LLC
Overland Park, KS
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Editor’s Note
I
n Belmonte v. Examination Management Services Inc., N.D.
Tex., No. 3:07-cv-0552-L, July 30, 2010, the U.S. District Court
for the Northern District of Texas ruled that an employer would
not be equitably estopped from denying an additional 10 years
of retirement benefits on top of the five years of benefits it paid to
a former executive who argued that the employer did not satisfy the
oral promises to pay him benefits for 15 years. Granting the motion of
Examination Management Services Inc. (EMSI) to dismiss Anthony
F. Belmonte’s complaint, Judge Sam A. Lindsay rejected the argument
that Belmonte established the “extraordinary circumstances” element
of an equitable estoppel claim under ERISA because his claim was
a large sum of money and Examination Management Services, Inc.
(“EMSI”) initially denied that a top-hat plan for Belmonte existed. The
court said that failing to live up to a written or oral assurance did not
meet extraordinary circumstances.
The action was originally filed by Anthony F. Belmonte against
Defendant Examination Management Services, Inc. (“EMSI”) in the
United States District Court for the Northern District of Illinois, Eastern
Division, on May 31, 2005. Belmonte filed his first amended complaint
on April 18, 2006, to allege additional facts and clarify his claim for
ERISA benefits. The Illinois federal district court transferred the case to
U.S. District Court for the Northern District of Texas. On April 29, 2010,
that court granted summary judgment in favor of EMSI on Belmonte’s
ERISA benefits claim, but it afforded Belmonte an opportunity to amend
his complaint to cure deficiencies and add a claim for ERISA estoppel.
The complaint set forth a single claim for ERISA estoppel and
alleged the facts as follows. Belmonte was an employee of EMSI from
February 1986 to November 1997 when he retired. Beginning in 1991,
EMSI provided a retirement plan, the EMSI Employee Plan, for its
officers offering $1,000 per month for 15 years after retirement. In 1990,
Belmonte was told by EMSI’s president and sole owner, John Utley,
that he would not be included in this plan because his advanced age and
poor health would increase the cost of the plan but would nevertheless
receive the same retirement benefits. He received similar promises from
Utley again in the year before his retirement, this time with assurances
that Utley “might even put it in writing,” to which Belmonte responded,
“that would be nice.”
After retirement, Belmonte applied for and received retirement
benefits under a top-hat plan from EMSI that lasted for five years,
iii

iv / JOURNAL OF PENSION PLANNING & COMPLIANCE
beginning in August 1998 and ending in August 2003. Belmonte’s complaint
sought to have EMSI estopped from denying him the additional
10 years of benefits that Utley had represented he would receive. EMSI
moved to dismiss the complaint on June 4, 2010, under Rule 12(b)(6)
of the Federal Rules of Civil Procedure for failure to state a claim upon
which relief could be granted. EMSI contended that Belmonte failed
to allege facts sufficient to establish that his reliance upon Utley’s representations
was reasonable and that his case presented extraordinary
circumstances.
The court stated that to defeat a motion to dismiss filed pursuant
to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a plaintiff is
required to plead “enough facts to state a claim to relief that is plausible
on its face” [Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007);
Reliable Consultants, Inc. v, Earle, 5l7 F.3d 738, 742 (5th Cir. 2008);
Gutdry v. American Pub. Life Ins. Co., 512 F.3d 177, 180 (5th Cir. 2007)].
A claim would satisfy the plausibility test “when the plaintiff pleads
factual content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged. The plausibility
standard is not akin to a ‘probability requirement,’ but it asks for more
than a sheer possibility that a defendant has acted unlawfully” [Ashcroft
v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (internal citations omitted)]. The
court stated that although a complaint would not need to contain
detailed factual allegations, it was required to set forth “more than labels
and conclusions, and a formulaic recitation of the elements of a cause
of action will not do” [ Twombly, 550 U.S. at 555 (citation omitted)]. The
“[f]actual allegations of [a complaint] must be enough to raise a right to
relief above the speculative level. . . on the assumption that all the allegations
in the complaint are true (even if doubtful in fact).” [ Id. ]
The court stated that in reviewing a Rule 12(b)(6) motion, the
court was required to accept all well-pleaded facts in the complaint as
true and view them in the light most favorable to the plaintiff [Sonnier
v. State Farm Mutual Auto. Ins. Co., 509 F. 3d 673, 675 (5th Cir. 2007);
Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464,
467 (5th Cir. 2004); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996)].
In ruling on such a motion, the court could not look beyond the pleadings.
[ Id. ; Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999), cert.
denied, 530 U.S. 1229 (2000).] The pleadings included the complaint
and any documents attached to it [Collins v. Morgan Stanley Dean
Witter, 224 F.3d 496, 498–499 (5th Cir. 2000)]. Likewise, “‘[documents
that a defendant attaches to a motion to dismiss are considered part of
the pleadings if they are referred to in the plaintiffs’ complaint and are
central to [the plaintiffs] claims.”’ [ Id. (quoting Venture Assocs. Corp. v.
Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir. 1993)).]

EDITOR’S NOTE / v
The court stated that the ultimate question in a Rule 12(b)(6)
motion was whether the complaint stated a valid claim when it was
viewed in the light most favorable to the plaintiff [Great Plains Trust Co.
v. Morgan Stanley Dean Witter, 313 F.3d 305, 312 (5th Cir. 2002)]. While
well-pleaded facts of a complaint would be accepted as true, legal conclusions
were not “entitled to the assumption of truth” [ Iqbal, 129 S. Ct.
at 1950]. Further, a court was not to strain to find inferences favorable to
the plaintiff and was not to accept conclusory allegations, unwarranted
deductions, or legal conclusions [R2 Invs. LDC v. Phillips, 401 F.3d 638,
642 (5th Cir. 2005)]. The court would not evaluate the plaintiffs’ likelihood
of success; instead, it only would determine whether the plaintiff
had pled a legally cognizable claim [United States ex rel. Riley v.
St. Luke’s Episcopal Hosp., 355 F.3d 370, 376 (5th Cir. 2004)].
The court stated that ERISA estoppel was a cognizable claim in
the Fifth Circuit. “To establish an ERISA-estoppel claim, the plaintiff
must establish: (1) a material misrepresentation; (2) reasonable and
detrimental reliance upon the representation; and (3) extraordinary
circumstances” [Mello v. Sara Lee Corp., 431 F.3d 440, 444–445 (5th
Cir. 2005)]. The court stated that the Fifth Circuit had not yet explained
what constituted extraordinary circumstances. The court therefore
looked to other circuits for guidance. The Third Circuit had held that
“generally extraordinary circumstances involve acts of bad faith on the
part of the employer, attempts to actively conceal a significant change
in the plan, or commission of fraud” [Burstein v. Retirement Account
Plan for Emps. of Allegheny Health Educ. & Research Found., 334
F.3d 365, 383 (3d Cir. 2003)]. The Third Circuit had also suggested
that extraordinary circumstances could exist where a plaintiff repeatedly
and diligently inquired about benefits and was repeatedly misled
[Kurz v. Philadelphia Elec. Co., 96 F.3d 1544, 1553 (3d Cir. 1996)
(citing Smith v. Hartford Ins. Grp., 6 F.3d 131, 142 (3d Cir. 1993))]. It
has also suggested that extraordinary circumstances could exist where
misrepresentations were made to an especially vulnerable plaintiff. [ Id.
(citing Curcio v. John Hancock Mut. Life Ins. Co., 33 F.3d 226, 238
(3d Cir. 1994)).] Given the lack of precedent in the Fifth Circuit on the
issue of extraordinary circumstances, the court found these authorities,
primarily Burstein , illustrative and persuasive. Additionally, at least two
district courts in the circuit relied on Burstein to illustrate extraordinary
circumstances. [ See, e.g., Sullivan v. AT&T, Inc., No. 3:08-CV-1089,
2010 U.S. Dist. LEXIS 24065, at *17 n.50 (N.D. Tex. 2010); Evans v.
Sterling Chems., Inc., No. 4:07-CV-625, 2010 U.S. Dist. LEXIS 65681,
at *82 (S.D. Tex. 2010).]
The court stated that EMSI first argued that Belmonte failed to
state the necessary facts to show that he acted in reliance on Utley’s

vi / JOURNAL OF PENSION PLANNING & COMPLIANCE
misrepresentations. Belmonte responded that staying in his job was an
act of reliance. EMSI next argued that Belmonte failed to allege sufficient
facts to prove that such reliance on the misrepresentations was
reasonable. It pointed out that the representations took place on only
two occasions, that Belmonte was a sophisticated vice president who
should not have relied on casual representations, and that he could not
reasonably have relied on the statements after he expressed a desire to
see them in writing and no writing materialized. Belmonte responded
that the complaint contained sufficient facts because Utley had actual
authority to make retirement decisions, which was evidenced both by
his position and by Belmonte having received actual benefits for five
years after retirement. In its reply, EMSI countered this argument by
alleging that the complaint failed to allege facts sufficient to show
that Utley had actual or apparent authority over retirement benefits
plans, and that Belmonte’s reliance therefore could not have been
reasonable.
The court stated that the complaint stated sufficient facts to show
that there was reliance. There was a rational expectation that individuals
would make decisions to stay in or leave a position in part based
on expected retirement benefits. For this reason, staying in a position
because benefits were expected could be reliance [Smith v. Hartford Ins.
Grp., 6 F.3d 131, 137 (3d Cir. 1993)]. The court stated that Belmonte
was mistaken, however, in believing that the benefits he received after
retirement were evidence of the reasonableness of his reliance. The
court could not infer that, because Belmonte ultimately received five
years of benefits, it was reasonable for him to expect those benefits
before they were actually received.
The court stated that EMSI’s argument that the reliance was not
reasonable because of the agency relationship, however, was also flawed.
EMSI argued that Belmonte failed to establish an agency relationship
because he did not demonstrate “written or spoken words or conduct,
by the principal, communicated cither to the agent (actual authority)
or to the third party (apparent authority)” [Insurance Co. of N. Am.
v. Morris, 981 S.W. 2d 667, 672 (Tex. 1998)]. The complaint nevertheless
established that Utley had actual authority due to his position as
sole owner and president. It further showed that it was Utley who gave
Belmonte information about the retirement plan and, during his first
discussion with Belmonte, he had intimate knowledge of the financing
of the EMSI Employee Plan. For example, he named Belmonte and
Russ Davidson in particular as individuals who would cost more to his
company than the other officers. Assuming this conversation took place
as Belmonte stated, it would not have been unreasonable for Belmonte
to infer Utley’s apparent authority over retirement benefits.

EDITOR’S NOTE / vii
The court stated that in the ordinary case of ERISA estoppel, the
question would be whether reliance on written or oral statements was
reasonable given the contradictory terms of the plan. [ See, e.g., Bratton
v. Schlumberger Tech. Corp. Pension Plan, 299 F. App’x 375, 377 (5th
Cir. 2008); High v. E-Systems, Inc., 459 F.3d 573, 580 (5th Cir. 2006).]
The situation in this case was unusual because the top-hat plan had
no written document that could be contradicted. Although Belmonte
and Utley spoke only twice about his retirement benefits, the lack of a
written document to put Belmonte on notice that the plan was different
than his expectations made it more plausible that he would rely on
oral representations. EMSI called attention to Belmonte’s position as a
corporate vice president and questioned whether it was plausible that
such a sophisticated person would believe such a casual assertion after
having expressed a desire to see it in writing, a desire that was never
fulfilled. The court stated that this, however, went to the credibility of
Belmonte and was not appropriate to resolve within the context of a
motion to dismiss for failure to state a claim. The court stated that, on
balance, Belmonte’s statement of facts alleging reasonable reliance was
sufficiently plausible to satisfy the Twombly standard.
The second question before the court was whether Belmonte had
sufficiently pled extraordinary circumstances. EMSI argued that Belmonte
had failed to state a claim because it did not allege any egregious
circumstances amounting to bad faith, active concealment, or fraud
that would have met the standard in Burstein . Belmonte responded by
arguing that more recent precedent in the Third Circuit showed that
the facts he alleged amounted to extraordinary circumstances because
they involved a significant amount of money and representations that
occurred over a long period of time (citing Pell v. E.I. DuPont De
Nemours & Co., Inc., 539 F.3d 292, 304 (3d Cir. 2008)). EMSI countered
in its reply that Belmonte misconstrued the Third Circuit authority
from Pell .
Belmonte alleged four facts that he believes demonstrate extraordinary
circumstances:
(1) the representation of $1,000 per month for 15 years
came from EMSI’s president and sole owner, Mr. Utley; (2)
no summary plan description or plan documents were ever
provided to Belmonte or ever existed; (3) Belmonte received
nothing in writing and no oral communication that would
indicate that the representations made by Mr. Utley were
false; and (4) EMSI initially denied the very existence of the
EMSI Belmonte Plan, and continued to do so until after
Belmonte filed this lawsuit . . . .

viii / JOURNAL OF PENSION PLANNING & COMPLIANCE
The court stated that the first allegation, the amount of the
claim, was by itself unextraordinary. There was no precedent for the
proposition that the amount of the claim established an extraordinary
circumstance; the amount went only to the materiality of the misrepresentation,
which was a separate element of the claim. The second and
third allegations were relevant to the reasonableness of the reliance
because they established that Belmonte was not given conflicting information
that would either supersede his belief or which would put him
on notice that he ought to inquire more diligently into the terms of the
plan. They were not relevant, however, to the question of extraordinary
circumstances. EMSI argued, and the court agreed, that because the
Northern District of Illinois had already found that Belmonte’s was a
top-hat plan, no written notice was required. The court stated that it
was not extraordinary that EMSI did not give Belmonte a plan summary
or other documentation that would put him on notice when none
was required.
The court stated that the fourth allegation, EMSI’s denial that the
plan existed, presented a closer question for the court. It was unusual
that the existence of a plan would be denied after benefits had already
been paid out for five years. The court did not find, however, that this
fact alone was sufficient to plead fraud, bad faith, or an attempt to
actively conceal changes in the plan. There had been extensive discussion
between the parties regarding Khan v. American Int‘l Grp., Inc.,
654 F. Supp. 2d 617, 629–630 (S.D. Tex. 2009). In Khan , the plaintiff did
not argue that his case was one in which extraordinary circumstances
were present. The court stated that as Khan had no applicability to
the issue of extraordinary circumstances, the parties reliance on Khan
was misplaced and the court would disregard any references to Khan ,
Belmonte argued that recent authority from the Third Circuit, Pell v.
E.I. DuPont De Nemours & Co. Inc., 539 F.3d 292, 304 (3d Cir. 2008),
supported his position that extraordinary circumstances existed. He
argued that Pell established that extraordinary circumstances existed
where the “misstatements from [the defendant] had been repeated over
a long period of time and dealt with an important matter involving a
significant amount of money . . . .” The court stated that Belmonte
misread Pell ’s holding. The court stated that in Pell , the plaintiff repeatedly
and diligently inquired into his benefits and the defendant made
repeated misrepresentations. Belmonte had not alleged that he made
such diligent and repeated inquiries. He also did not plead that he was
an especially vulnerable plaintiff.
The court stated that ultimately, the denial that the plan existed
was a material misrepresentation, but it did not amount to extraordinary
circumstances. The court stated that the four allegations Belmonte

EDITOR’S NOTE / ix
alleged together amounted only to material representation and reasonable
reliance. “Simply failing to live up to written or oral assurances
does not constitute the requisite extraordinary circumstances, and that
is all plaintiffs allege here” [Sullivan v. Monsanto Co., 615 F. Supp.
2d 469, 473 (E.D. La. 2009)]. The court accordingly determined that
Belmonte’s claim for ERISA estoppel failed to state a claim upon which
relief could be granted and should be dismissed with prejudice.
The court stated that the decision to allow amendment was within
the sound discretion of the district court [Norman v. Apache Corp., 19
F.3d 1017, 1021 (5th Cir. 1994)]. The court stated that Belmonte had
not sought leave to amend his complaint if the court granted EMSI’s
motion to dismiss. Even if he had, the court stated that it would not
grant such leave. The court, on April 29, 2010, apprised Belmonte of
the legal standard he would have to meet to properly state an ERISA
estoppel claim. This was Belmonte’s third opportunity to plead this
claim in this lawsuit. In 2005, the Mello decision recognized the claim
of ERISA estoppel in the circuit, and this case was transferred to this
district in March 2007.
The court stated that three bites at the apple was adequate opportunity
to plead a sustainable cause of action. Among the reasons that
a court could deny leave to amend were undue delay, failure to cure
deficiencies by prior amendment, and futility of amendment [Schiller v.
Physicians Res. Group Inc., 342 F.3d 563, 566 (5th Cir. 2003)]. The case
had been going on in some capacity for over three years, and allowing
Belmonte to amend would cause undue delay. Further, Belmonte had
failed to cure deficiencies identified by the court in its April 29, 2010,
memorandum opinion and order. The court therefore did not allow
Belmonte to amend again.
Bruce J. McNeil
Editor-in-Chief

Will the Pension
Protection Act Protect
Defined Benefit Pensions?
JONATHAN M. FURDEK AND
JOHN J. LUCAS
T
he
Jonathan M. Furdek, Ph.D., is an Associate Professor in Operations
Management at Purdue University Calumet where he teaches courses
in quantitative methods and operations management at both the
undergraduate and graduate level. Dr. Furdek earned his Ph.D. from
the Krannert Graduate School of Management at Purdue University in
Industrial Economics. He received his Master’s and Bachelor’s degrees
from Marquette University in Milwaukee, Wisconsin. His research
and consulting interests involve pension benefits, manpower and facility
planning, and supply chain management, focusing on the long run
implications of welfare benefits to the operations of the firm.
John J. Lucas, Ph.D., PHR, was formerly the Industrial Relations
Representative for Commonwealth Edison. He has experience in all
facets of Human Resource Management, including labor relations,
benefits administration, human resource planning, and health education.
He received his Master of Science in Industrial Relations (MSIR)
and Ph.D. degrees from Loyola University Chicago. Dr. Lucas also
holds the Professional Human Resource (PHR) license and is an
active member of the Society for Human Resource Management
(SHRM). He is a professor of Management at Purdue University
Calumet and teaches a variety of human resource management
courses including Labor Relations, Benefits Administration, Collective
Bargaining, Compensation Management, and Human Resource
Planning, Selection and Placement. John’s research interests are in the
areas of labor relations, benefits, and health education. He is also a
graduate of Purdue University Calumet.
Pension Protection Act (PPA) of 2008 was designed to
assure that defined benefit pension plans would be adequately
funded to assure future pensioners that their pensions
would be properly supported financially. Organizations are
1

2 / JOURNAL OF PENSION PLANNING & COMPLIANCE
required by this Act to fund pensions adequately. This paper traces
the developments that have taken place since the Act was passed and
the potential financial consequences that have resulted. An aggregate
model is created to evaluate the consequences of the funding formula
in light of changing interest rates. The alternatives to full funding that
firms might consider are examined.
THE PENSION PROTECTION ACT (PPA)
The Pension Protection Act (PPA), known as (PL109-280), was
signed into law by President George W. Bush and was viewed as a
landmark pension reform bill. It was the first major federal law that
addressed retirement programs in the United States since the enactment
of the Employee Retirement Income Security Act (ERISA) in 1974. The
PPA was a comprehensive federal law consisting of 907 pages and contained
fourteen major Titles ranging from Title I “Reform of Funding
Rules for Single-Employer Defined Pension Plans” to Title XIV “Tariffs
Provisions” (Lucas, 2008).
The primary goal of the PPA was to bolster the traditional defined
pension system in the United States by requiring employers to maintain
certain pension funding levels (Landsberg, 2008). In essence, the PPA
increased the accountability of employers relating to the defined benefit
plans offered by an employer (Lucas, 2009). Under Title I Section 303 of
the PPA, new minimum funding standards were established for a traditional
defined benefit plan. “Funding Targets” were established for defined
benefit plans and were to be phased in at 92% in 2008, 94% in 2009, 96%
in 2010, and 100% in 2011 (PL109-280, 2006). The established funding
target requirements were to ensure that the assets of the defined benefit
plan covered the plan’s promised retirement benefits (Lucas, 2009).
The PPA also contained a provision for special rules for those
defined benefit plans that were considered “at-risk plans.” An “at-risk
plan” was defined as a plan with “the funding target attainment percentage
for the proceeding year was less than eighty percent” (PL109-280,
2006). Within the context of the PPA, a transition rule was established
for “at-risk plan” with 65% in 2008, 70% in 2009, and 75% in 2010 (PL
109-280). The Secretary of Treasury was given the authority to govern
and apply at-risk provisions outlined under the PPA (PL 109-280).
In retrospect, the PPA was enacted to address the underfunding
of traditional defined pension plans in the United States. In essence,
the PPA was to bolster the traditional defined benefit pension system
by requiring employers to maintain certain pension funding levels of
the offered retirement benefit. An important question that still remains
is whether the PPA would achieve its goals of protecting traditional
defined benefit pensions offered by an employer.

WILL THE PENSION PROTECTION ACT PROTECT DEFINED BENEFIT PENSIONS? / 3
THE EVOLUTION OF THE PBGC: HOW WE GOT HERE
When the Pension Benefits Guaranty Corporation (PBGC) was
created in 1974, there was an urgency to get the agency staffed and operating.
The procedures and policies needed to be enacted quickly. Based
on a nonscientific sampling of a few annuities, the PBGC’s actuaries
put together a set of tables that insured pension plans were required to
implement. The tables were peculiar in that they reflected an inverted
yield curve and were heavily loaded in favor of the insurer (Lucas and
Furdek, 2008). This was beneficial for the pensioners when the pension
plans were amply funded. When interest rates were comparatively high
and the economy was in a growth mode, most firms were adequately
funding their pension obligations.
Many key factors changed when major firms began to outsource
production and faced international competition in their markets. One
factor was that a significant number of firms were falling behind in
funding pensions partly due to falling interest rates and opted to pay
higher premiums. Coupled with Chapter 11 bankruptcies of large companies,
namely LTV Steel and United Airlines, the PBGC found itself
in a serious financial situation and began to run chronic deficits. Following
the resolution of a conflict with the Internal Revenue Service,
the PBGC changed its methodology for evaluating pension obligations,
utilizing 30-year Treasury Security yields to evaluate pension liabilities.
This reduced obligations for pension funds briefly, but with a slowing
economy and even lower interest rates, pension funds continued to lag
in the financial obligation to fully fund pensions.
Realizing that many pension plans were in jeopardy with inadequate
financial backing, coupled with the precarious financial
situation at the PBGC, Congress passed the PPA with the intent of
providing the PBGC with a solid financial foundation as well as insuring
adequate funding to protect defined benefit pension plans. One feature
of the PPA was a reconstitution of the method that firms would
determine the value of pension assets and to establish the value of the
pension obligation. The U.S. Treasury would publish three rates each
month that firms would use to determine the value of assets and three
different rates to determine the value of the pension obligation. The
difference would be used to determine the cost of the insurance premium.
The intent of the three rates, one rate for obligations over years
1 through 5, another for years 6 through 20, and a third for 21 or more
years into the future, was to represent more accurately the yield curve
of a blend of AA bonds and U.S. Treasury securities. The purpose of
these requirements on pension plans was to insure adequate funding
for the PBGC and to provide a better financial foundation for existing
pension plans.

4 / JOURNAL OF PENSION PLANNING & COMPLIANCE
THE SIMULATION MODEL
In order to assess the magnitude of obligations facing pension
plans under the prevailing circumstances, a simulation of a prototype
pension plan was constructed to consider the impact of economic conditions
as well as financial factors on the ability of a pension plan to
meet its obligations.
Consider a prototype pension plan that covers 1,000 employees. The
age distribution of the employees reflects the current age distribution of
the civilian noninstitutional labor force (BLS 2010) where it is reported
that 55.6% of employees are under 45 years of age, 34.4% are between
45 and 59 years, and 10.5% are 60 years of age or older. Assume that
all employees are vested and that employees under age 45 have a vested
benefit of $1,000 per month or $12,000 per year beginning at age 65;
employees between an age of 45 and 60 have a vested pension benefit of
$1,500 per month or $18,000 per year beginning at age 65; and employees
over age 60 have a vested pension benefit of $2,000 per month or $24,000
per year. These stipulations are summarized in Table 1 below:
Table 1. Properties of the Prototype
Pension Plan Simulation
Employee Age
Number of
Employees
Vested Monthly
Pension Benefit
20–under 45 years 556 $1,000
45–under 60 years 344 $1,500
60 years and over 105 $2,000
No provision has been made in the simulation to distinguish the
workforce by gender or race, and it is recognized that the distribution of
the age of covered employees in most large industrialized pension plans
may not reflect the age distribution of the workforce. Furthermore, it is
assumed that all employees would retire at exactly age 65.
There are several standard models that are generally accepted to
evaluate group pension obligations. The application depends on the
quality and availability of data. The most appropriate model considers
the expected present value (EPV) of the aggregate pension contract
commitments. This model will be applied in this simulation. Simply
stated, the model is as follows:
p m A
EPV i ∑ (1) i

WILL THE PENSION PROTECTION ACT PROTECT DEFINED BENEFIT PENSIONS? / 5
where A is the annual pension payment, p m is the probability of survival
during year I, and r is the discount rate used to determine the discount
factor, 1+r, for year i. The summary indicator “i” represents each
year during which the pension benefit would be paid. This calculation
applies to each individual in the pension plan and when summarized,
determines the total pension liability the firm would expect for the pension
plan at any given time.
There were four separate simulations conducted. The first simulation
utilized a 30-year Treasury bond security yield as was the case
in 2006. At that time, the 30-year yield was approximately 4.9%. The
second simulation utilized the current rates as published by the PBGC
for August 2010 (PBGC, 2010) to determine the premium on any outstanding
debt. These rates are currently 2.06% for obligations 1–5 years
out, 5.10% for obligations 6–20 years out, and 6.11% for obligations
of 21 years or more. The third simulation utilized the current rates
published by the PBGC for August 1010 (PBGC, 2010) for valuing
the pension obligation. These rates are 4.05% for obligations 1–5 years
out, 6.47% for obligations 6–20 years out, and 6.65% for obligations of
21 years or more. The fourth simulation addresses the concern that the
pensioners be protected and this simulation utilizes current yields on
U.S. Treasury securities with maturities ranging from one to 30 years to
evaluate the obligations of this prototype pension program. The yields
on U.S. Treasury strips range from 0.16% up to 3.43% as reported in
August of 2010 (Fidelity, 2010).
THE RESULTS OF THE SIMULATION
The first simulation considers the situation in 2006 when the
PBGC was utilizing 30-year treasury securities as the basis for evaluating
outstanding pension obligations. In August of 2006, the 30-year
treasury security yield was 4.9%. The resulting simulation indicates the
value of the pension obligation of the prototype pension program. The
results are summarized below in Table 2 :
Employee
Age
Table 2. Pension Fund Value in 2006 Using 30-Year
Treasury Yields for a Discount Rate
Pension
Amount
Expected
Pension Value
Number of
Employees
Total Expected
Value
20–under 45 $1,000/mo. $ 23,072.65 556 $12,828,393
45–under 60 $1,500/mo. $ 96,324.56 344 $33,135,648
60 and over $2,000/mo. $225,882.90 105 $23,717,704
$69,681,745

6 / JOURNAL OF PENSION PLANNING & COMPLIANCE
The simulation indicates that the company expected obligation for
this prototype fund was $69,681,745. At the time, it was widely recognized
that a sufficient number of firms were unable to meet the obligations
as defined by the PBGC, which resulted in the PBGC incurring
significant financial challenges. This simulation provides a rather artificial
benchmark for measuring the impact of the future policy changes
and economic condition changes that occurred during the period from
enactment to the present.
The second simulation considers the changes imposed by the
U.S. Treasury when the yields used to evaluate pension programs were
revised and the U.S. Treasury prescribed three rates to be used in determining
the premium on any outstanding debt obligation. In August
2010, these rates were 2.06%, 5.10%, and 6.11% as defined above. The
results of this simulation are listed in Table 3 .
Employee
Age
Table 3. Pension Fund Value in 2010 Using 2.06%, 5.10%,
and 6.11% for a Discount Rate
Pension
Amount
Expected
Pension Value
Number of
Employees
Total Expected
Value
20–under 45 $1,000/mo. $ 14,603.28 556 $ 8,119,424
45–under 60 $1,500/mo. $ 84,676.24 344 $29,128,626
60 and over $2,000/mo. $227,846.40 105 $23,923,872
$61,171,922
This simulation indicates that the new provisions for determining
an appropriate discount scheme resulted in two significant findings.
The total pension obligation projected by the PBGC has declined while
the funding of the mature employees that are close to retirement has
been relatively unchanged. Second, the initial impact of this policy
change impacts younger employees as firms perceive less financial
responsibility in securing the pension obligations of this age class of
employees.
The third simulation considers a further modification where the
PBGC published rates to be utilized in determining the value of the
pension obligation. These rates in August 2010 were 4.05%, 6.47%,
and 6.65% as described above. Furthermore, the PBGC allows firms
to utilize one set of rates to value pension obligation as well as to
determine the value of outstanding debt obligation. Using this one
set of rates, the results in the simulation findings are summarized in
Table 4 :

WILL THE PENSION PROTECTION ACT PROTECT DEFINED BENEFIT PENSIONS? / 7
Employee
Age
Table 4. Pension Fund Value in 2010 Using 4.05%, 6.46%,
and 6.65% for a Discount Rate
Pension
Amount
Expected
Pension Value
Number of
Employees
Total Expected
Value
20–under 45 $1,000/mo. $ 11,893.51 556 $ 6,612,792
45–under 60 $1,500/mo. $ 69,841.21 344 $24,025,376
60 and over $2,000/mo. $198,078.40 105 $20,798,232
$51,436,400
The more liberal rates reduce the pension obligations further by
nearly 16% which certainly would aid the PBGC in claiming a policy
success under the PPA, and the obligations are reduced clear across all
pensioners. At the same time, the risk to PBGC is substantially greater,
considering the economic environment and current yields on securities
in the marketplace in the calendar year 2010.
The consequence of the policy changes in manipulating the discount
factor in evaluating pension obligations results in approximately
a 25% reduction in the obligations to the PBGC for a full funding of
a pension plan, according to PBGC guidelines, over a period of four
years while the interest rates in the marketplace were steadily declining
and the real financial obligation would be increasing.
To measure the real impact that changing interest rates would
have, and to protect pension interests by fully funding pension plans
and minimizing risk to pensioners, rather than having the PBGC absorb
risks, a fourth simulation was conducted utilizing current yields on U.S.
Treasury securities maturing over the same period of years the pension
fund obligations occur. This simulation estimates the “real” financial
obligation required in the current market situation to properly fund
the prototype pension plan with minimum marker risk. The results are
summarized in Table 5 below:
Employee
Age
Table 5. Pension Fund Value in 2010 Using Current
Treasury Yields for a Discount Rate
Pension
Amount
Expected
Pension Value
Number of
Employees
Total Expected
Value
20–under 45 $1,000/mo. $ 39,853.03 556 $22,158,284
45–under 60 $1,500/mo. $123,436.90 344 $42,462,293
60 and over $2,000/mo. $277,523.40 105 $29,139,957
$93,760,534

8 / JOURNAL OF PENSION PLANNING & COMPLIANCE
The current yields on U.S. Treasury securities range from 0.255% in
2010 to 3.87% in 30 years and beyond. In order to properly fund this plan to
protect pensions would require $93,760,534 in current funding. Substantially
greater than the prescribed obligation of $61,171,922 as presently required
or even the $51,436,400 permitted under Treasury and PBGC rules.
CONCLUSIONS
Relying on the results of these simulations, two consequences of
the PPA provisions become quite apparent. There is a pattern over time
under the pressure of the PPA obligations to increase discount factors
on the part of the U.S. Treasury, and the PBGC that results in an inevitable
reduction in the financial obligations of the pension funds. This
serves the purpose of meeting the obligations imposed in the legislation.
However, under a more comprehensive analysis, recognizing the impact
of declining rates, largely due to the economic decline and policy measures
on the part of the Federal Reserve System to push down interest
rates while attempting to stimulate the economy, the results are conclusive,
that pension plans likely will expose pensioners to greater risk.
While some firms, significantly underfunded, may be stimulated to meet
the newly prescribe obligations, others may decrease funding while relying
on the authority and insurance of the PBGC.
Clearly, the monetary obligation to properly fund pension plans is
substantially greater than the prescribed financial obligation if the goal
is to protect pensioner interests. However, the assumptions involved
in these simulations may still be too general. Factors such as race and
gender have not been distinguished in this study and could impact the
financial requirements further. Additionally, the PBGC as well as the
simulation study disregards any commitment to nonvested employees
which imposes a further financial burden on the pension plan.
It remains to be seen if the funding provisions required under
current PBGC guidelines will adequately fund the obligation under the
insured pension plans as the U.S. economy recovers from the severest
recession since the Great Depression.
REFERENCES
BLS, Table 3.1 Civilian Labor Force by Age, Sex, Race and Ethnicity,
Employment Projections Program, U.S. Dept. of Labor , August 2010.
Landsberg, Richard D., “An Overview of the Pension Protection
Act of 2006,” Journal of Pension Planning and Compliance , Vol. 33,
No. 4, pp. 22-42, 2008.

WILL THE PENSION PROTECTION ACT PROTECT DEFINED BENEFIT PENSIONS? / 9
Lucas, John, “Did the Pension Protection Act (PPA) of 2006 Resolve
the Pension Crisis in Corporate America?” American Journal of
Business Education, July 2009, Volume 2, Number 4, pp. 1-5.
Lucas, John, “An Update on 401(k) Plans in the United States,”
Journal of Business and Economics Research, May 2008, Volume 6,
Number 5, pp. 105-109.
Lucas, John J. and Jonathan M. Furdek, “A Historical Analysis of
the Pension Benefit Guaranty Corporation 1974–Present,” Journal of
Pension Planning and Compliance , Vol. 33, No. 4, pp. 14-21, 2008.
Public Law 109-280, http://frwebgate.access.gpo.gov/cgi-bin/getdoc.
cgi?dbname=109_cong_public_laws&docid=f:publ280.109.pdf,
Accessed: August 2010.
U.S. Treasury, Daily Treasury Yield Curve Rates, http://www.treas.
gov/offices/domestic-finance/debt-management/interest-rate/yield.
shtml, Accessed: August 10, 2010.

Summary of Code
Section 415(m) Plans—
Qualified Governmental
Excess Benefit
Arrangements
TERRY A.M. MUMFORD
Terry A.M. Mumford is a partner at Ice Miller LLP in the Firm’s
Employee Benefits Group and concentrates her practice in public
sector employee benefits. She works with governmental pension plans
across the country and consults with public sector employers and
associations, including public university systems and educational institutions
on a variety of benefit matters. She has worked with statewide
and local pension plans on the development and passage of legislation
designed to bring retirement plans into compliance with federal laws,
including the Internal Revenue Code, the Americans with Disabilities
Act, the Age Discrimination in Employment Act, and the Uniformed
Services Employment and Reemployment Rights Act. She has also
consulted with retirement systems and public employers from coast
to coast on cutting edge benefit options and plan design, including
alternatives for retiree health care funding.
A
qualified governmental excess benefit arrangement
(“QEBA”) under Section 415(m) of the Internal Revenue
Code (“Code”) is a type of nonqualified deferred
compensation plan available to governmental employers
only. It works in tandem with a qualified retirement plan that is a
governmental plan under Code Section 414(d) in order to make
contributions or pay benefits in excess of the Code Section 415
limits. A QEBA will allow a governmental plan sponsor to replace
contributions or benefits that were due under the “normal” provisions
of a governmental plan, but that could not be paid from that plan due
to the Code Section 415 limits. In this way, a QEBA is an important
10

SUMMARY OF CODE SECTION 415(M) PLANS / 11
tool for addressing the tension that may arise between state or local
law provisions protecting a participant’s right to their entire statutory
benefit and the limitations imposed by Code Section 415 on the
amount of that benefit permissible from the qualified plan. A QEBA
can also be designed to be used in connection with either a defined
contribution retirement plan or a defined benefit pension plan to provide
contributions and benefits in excess of Code Section 415 limits.
GENERAL REQUIREMENTS
A QEBA must satisfy the following three requirements under
Code Section 415(m):
1. The excess benefit plan must be maintained solely to provide participants
in the excess benefit plan the part of the participant’s
annual benefit (or contribution) otherwise payable (or contributable)
under the qualified retirement plan except that the benefit (or
contribution) exceeds the applicable Code Section 415 limits;
2. Participants must have no right at any time to defer compensation
to the excess benefit plan; and
3. Benefits cannot be paid from a trust forming part of the qualified
retirement plan unless the trust is maintained solely for the purpose
of providing benefits under the excess benefit plan.
INCOME TAX TREATMENT
With regard to the income tax treatment of QEBAs, Code Section
415(m)(2) provides that:
(A) The taxable year or years for which amounts in respect
of a qualified governmental excess benefit arrangement are
includible in gross income by a participant, and
(B) The treatment of such amounts when so includible
by the participant, shall be determined as if such qualified
governmental excess benefit arrangement were treated as a
plan for the deferral of compensation which is maintained
by a corporation not exempt from tax under this chapter and
which does not meet the requirements for qualification under
Section 401.

12 / JOURNAL OF PENSION PLANNING & COMPLIANCE
In other words, a QEBA is treated as a nonqualified deferred
compensation plan sponsored by a for-profit employer for purposes
of income tax treatment. The income tax treatment of amounts under
a nonqualified deferred compensation plan or excess benefit arrangement
maintained by a private employer depends greatly on the plan’s
design. Several doctrines determine whether, depending on the plan’s
provisions, a participant will be immediately taxed on any amount
deferred or contributed to the plan. These doctrines include the Constructive
Receipt Doctrine, the Economic Benefit Doctrine, and the
application of the statutory provisions of Code Sections 83 and 402(b).
A trust established under the plan to help the employer meet its obligations
to pay benefits must also satisfy certain requirements to avoid
taxation of the plan participants before distribution. However, QEBAs
are excepted from the provisions of Code Sections 457(f). ( See Code
Section 457(f)(2)(E) and 409A ( see Code Section 409A(d)(2)(C)).)
ADDITIONAL REPRESENTATIONS
Recently, the IRS has informally requested that governmental plan
sponsors make the following additional representations when seeking
a private letter ruling (“PLR”) with regard to the establishment of a
QEBA:
• That the underlying defined benefit or defined contribution plan is
intended to be a qualified plan under Code Section 401(a) and is a
governmental plan described in Code Section 414(d);
• That a trust is established for the QEBA and funded so that benefits
may be paid as necessary to comply with the applicable Code
Section 415 limitations;
• That any employer covered by the underlying plan may be permitted
to participate in a QEBA, provided that such employer is a
municipality, political subdivision, an agency or instrumentality of
a state, or an agency or instrumentality of one or more municipalities
or political subdivisions; and
• That no employee contributions may be made to the QEBA.
The latter two representations have raised concern in certain
circumstances.
First, with respect to governmental employers, the IRS looks at
the underlying plan’s “plan document” (including statutes, regulations,

SUMMARY OF CODE SECTION 415(M) PLANS / 13
ordinances) to identify if nongovernmental employers may participate
in the underlying defined benefit or defined contribution plan.
Although the IRS and other federal agencies have not completed their
ongoing project to define what is or is not a governmental plan, the IRS
agents who are working the PLRs for QEBAs are having to look at the
issue in ruling on these requests.
Second, with respect to employee contributions, the IRS is concerned
about whether an employee has directly or indirectly caused a
benefit to be payable from the QEBA. This question can arise where
employees have made service purchases or increased their benefits to the
underlying qualified plan through additional contributions.
ADMINISTRATIVE ISSUES
If a governmental employer or governmental plan wishes to establish
a QEBA, there are administrative as well as legal issues that should
be considered. These include:
• What Code Section 415 testing protocols does the qualified plan
have in place to identify QEBA recipients? Do the testing protocols
take into account benefit features such as DROPs and COLAs?
• Is there a separate plan and trust for the QEBA? This is an important
step in obtaining IRS approval via a private letter ruling. It
can also be important in demonstrating to an IRS agent who is
reviewing the qualified plan for a determination letter that the
QEBA is separate from the qualified plan.
• Because the qualified plan cannot be used for the QEBA benefits,
how will contributions from employers for the QEBA be determined
and collected? In a single employer plan, this will be a more
straightforward question than in a multiple employer plan. In any
case, it is absolutely essential that contributions to the QEBA do
not pass through the underlying qualified plan.
• How will benefits be reported? Because the IRS takes the position
that nonqualified deferred compensation rules apply, a W-2 will be
required for reporting benefits paid to the participant.
• Will the QEBA benefit be paid as a proportion of the monthly
benefit? Or will the QEBA benefit be paid after all permitted
benefits have been paid from the qualified plan for a limitation
year?

14 / JOURNAL OF PENSION PLANNING & COMPLIANCE
PRIVATE LETTER RULINGS
The IRS has not issued final regulations on QEBAs. However,
the IRS has issued several private letter rulings addressing these types
of arrangements. 1 Summarized below are two of the more recent rulings:
one with respect to a QEBA that is part of a defined benefit plan
and another that addresses a QEBA used in connection with a defined
contribution plan.
PLR 200904036 (September 10, 2010) addressed an instrumentality
of a state that established a defined benefit plan that was a governmental
plan described in Code Section 414(d) intended to meet the
qualification requirements of Code Section 401(a). Pursuant to state
statute, a qualified excess benefit arrangement was established, within
the meaning of Section 415(m) of the Code, for the benefit of employees
participating in the defined benefit plan. Employees who participated
in the defined benefit plan became eligible for benefits from the excess
benefit plan if their benefits calculated under the benefit formula were
limited by Code Section 415(b), as applicable to governmental plans.
The excess benefit plan provided that a participant would receive a
benefit equal to the amount of retirement benefit that would have been
payable to, or with respect to, a participant by the defined benefit plan
that could not be paid because of the application of the limitations on
retirement benefits under Code Section 415(b) (“excess benefit”). An
excess benefit under the excess benefit plan would be paid only if and
to the extent the participant was receiving retirement benefits from the
defined benefit plan. The board of trustees established a separate trust
fund for segregation of the assets related to the excess benefit plan. The
trust fund was established solely for the purpose of holding employer
contributions intended to pay excess benefits to affected participants
in the excess benefit plan. The IRS held that the excess benefit plan
qualified under Code Section 415(m), and that the benefits under the
QEBA would be taxed to participants as paid or made available under
the plan.
In PLR 201031043 (August 6, 2010), the IRS reviewed an
arrangement which was intended to be a qualified governmental excess
benefit arrangement in accordance with Code Section 415(m). The
excess benefit arrangement was part of a money purchase pension
plan sponsored by a hospital district organized as a political subdivision
of a state. The money purchase pension plan was intended to be
qualified under Code Section 401(a) and to be a governmental plan
as defined in Code Section 414(d). The excess benefit arrangement
was maintained solely for the purpose of providing to participants in
the money purchase plan that part of the employer contributions that

SUMMARY OF CODE SECTION 415(M) PLANS / 15
otherwise would have been contributed by the employer on behalf of
such participants pursuant to the money purchase plan but which were
not contributed because of the limitations on contributions imposed
by Code Section 415. No employee contributions to the excess benefit
arrangement were allowed. Participation in the excess benefit
arrangement was automatic and mandatory for money purchase plan
participants whose plan contributions exceeded Code Section 415(c).
Participants could not make an election at any time to defer compensation.
The trust for the excess benefit arrangement was maintained as a
grantor trust (separate from the money purchase plan’s trust) for the
purpose of holding the contributions made by the employer under the
arrangement, paying benefits under the arrangement, and paying any
administrative expenses.
The IRS concluded, among other things, that the excess benefit
arrangement qualified under Code Section 415(m)(3) as a qualified
governmental excess benefit arrangement, that the benefits under the
arrangement would be included in the gross income of a recipient in
the year in which such benefits were actually paid or otherwise made
available to the recipient, that the contribution limits in Code Sections
457(b)(2) and 457(c) did not apply to contributions under the arrangement,
that contributions to the arrangement would not be taken into
account in determining whether any other employer plan was an eligible
deferred compensation plan under Code Section 457(b), and that
participants in the arrangement would not be taxed pursuant to Code
Section 457(f) on any amounts contributed to or held or distributed
under the arrangement by the trust.
A question that is not answered by these PLRs or other PLRs that
the IRS has issued is whether the QEBA benefits are subject to FICA or
whether they are exempt from FICA as “exempt governmental deferred
compensation plans” as described in Code Section 3121(v)(3).
These letter rulings cannot be cited as precedent, but they are
examples of how the requirements of the Code, revenue rulings, and
Treasury Regulations have been applied in recent situations in which
QEBAs were established by governmental entities.
A QEBA may be an attractive option for governmental employers.
It offers flexibility in the sense that it can be drafted to meet an employer’s
specific needs. A QEBA also creates goodwill between the employer
and plan participants because participants are being compensated for
benefits they would not otherwise be able to receive under the retirement
plan because of the limits under Code Section 415, notwithstanding
the provisions of the applicable statutes. In some cases, the QEBA
is a necessary tool to ensure compliance with state or local law in the
face of the Code Section 415 limits. Given recent IRS statements about

16 / JOURNAL OF PENSION PLANNING & COMPLIANCE
QEBAs, however, it is recommended that a governmental entity seek a
private letter ruling if it decides to establish a QEBA.
NOTE
1. See PLRs 200148075, 200317025, 200317026, 200322019, 200329046, 200410024, 200411048,
200904033, 200904035, 200904036, 201036027, and 201036028.

Attorney-Client Privilege
Issues in Employee
Benefits Practice: Who
Is the Client and When?
GWEN THAYER HANDELMAN
Gwen Thayer Handelman is Scholar-in-Residence at Nova Southeastern
University Shepard Broad Law Center in Fort Lauderdale,
Florida. She is a Fellow of the American College of Employee Benefits
Counsel and served for many years as Co-Chair of the American
Bar Association Section of Labor and Employment Law Employee
Benefits Committee Ethics Subcommittee. She currently Co-Chairs
the Labor Section’s Committee on Ethics and Professional responsibility.
This paper was originally prepared for the 2010 Midwinter
Meeting of the Ethics and Professional Responsibility Committee
March 25-27, 2010, in Coronado, California. Professor Handelman
acknowledges the significant contributions to this paper by Jeffrey
Smith McLeod, Stember Feinstein Doyle & Payne LLC, Pittsburgh,
Pennsylvania, and Michelle L. Roberts, Springer-Sullivan & Roberts
LLP, Oakland, California.
E
mployee benefits practice is particularly likely to involve
entity representation, multiple representation, and fiduciary
representation, all of which give rise to variations in the
application of the attorney-client privilege. Although the
attorney-client privilege is an evidentiary rule rather than an ethical
standard, familiarity with the privilege is essential to fulfilling a
plan or plan sponsor’s lawyer’s obligation of confidentiality 1 and
duty to provide information to a client “to the extent reasonably
necessary to permit the client to make informed decisions regarding
the representation” 2 and a plaintiff’s lawyer’s duties of competence 3
and diligence. 4
In a variety of settings involving employee benefit plans governed
by the Employee Retirement Income Security Act of 1974 (ERISA), 5
courts have considered whether particular communications come within
the scope of the attorney-client privilege. Most notably, attorney- client
17

18 / JOURNAL OF PENSION PLANNING & COMPLIANCE
privilege cases involving fiduciaries of employee benefit plans governed
by ERISA generally have treated plan participants and beneficiaries
as the “true” clients of a lawyer advising plan fiduciaries—at
least to the extent that attorney-client communications concern plan
administration—and have not protected communications between a
lawyer and a fiduciary from disclosure to plan participants. 6
This paper addresses the application of the attorney-client privilege
in employee benefits litigation with particular attention to recent
cases that illustrate the types of communications that will and will not
be protected by the attorney-client privilege in the contexts of entity
representation, multiple representation, and fiduciary representation.
THE BASIC ATTORNEY-CLIENT PRIVILEGE CRITERIA
The attorney-client privilege prevents compelled disclosure of confidential
attorney-client communications. 7 The privilege applies to confidential
communications from a client to the lawyer, whether oral or
written, 8 as well as advice, opinions, and similar communications from
the lawyer to the client. 9 Courts will deny protection if the privilege has
been waived (by agreement, disclaimer, failure to object, disclosure, or
putting the assistance or communication in issue 10 ) or if the communication
falls within an exception. 11
The Restatement of the Law Governing Lawyers explains that, for
the attorney-client privilege to apply, there must be: “(1) a communication
(2) made between privileged persons (3) in confidence (4) for the
purpose of obtaining or providing legal assistance for the client.” 12 Failure
to satisfy any of these criteria will defeat a motion for protection.
For example, the Ninth Circuit reversed a district court’s suppression
order, stating:
[t]ypically, an eight-part test determines whether information
is covered by the attorney-client privilege: (1) Where
legal advice of any kind is sought (2) from a professional
legal adviser in his capacity as such, (3) the communications
relating to that purpose, (4) made in confidence (5) by the
client, (6) are at his instance permanently protected (7) from
disclosure by himself or by the legal adviser, (8) unless the
protection be waived.” 13
The Ninth Circuit found that not all the criteria were met and
further explained that, under federal common law, the party asserting
the privilege bears the burden of proof. Johnson v. Couturier 14 also
affirmed that “[o]rdinarily, the party asserting attorney-client privilege

ATTORNEY-CLIENT PRIVILEGE ISSUES IN EMPLOYEE BENEFITS PRACTICE / 19
has the burden of establishing all the elements of the privilege” and
found that the defendants in ESOP litigation had in no way attempted
to establish the elements of the privilege. 15 The court refrained from
issuing a “lengthy dissertation on the privilege ‘exceptions,’” simply
noting that the individual defendants had disclaimed any right to
invoke the privilege, and the corporate holder of the privilege had not
made any argument to counter plaintiffs’ factual showing and legal
argument. 16
The criterion most commonly invoked to deny application of the
attorney-client privilege in employee benefits cases is the requirement
that a communication be made to obtain or provide “legal” assistance
for the client.” Courts have sought to clarify the distinction between
“legal” advice and “business” advice. In Curtis v. Alcoa, Inc., 17 plaintiff
former Alcoa employees brought a class-action suit pursuant to ERISA
and the National Labor-Management Relations Act alleging that Alcoa
breached its promise to provide lifetime retiree medical benefits at no
cost when Alcoa began charging them for a portion of their medical
care. The plaintiffs moved to compel Alcoa to produce communications
that Alcoa identified as privileged arguing that the documents at issue
represented business activity and not legal activity. The district court
disagreed, finding, inter alia :
1. Redacted portions of an e-mail sent by an attorney acting in his
capacity as in-house counsel providing advice about the union’s
right to information it requested regarding retiree medical benefits
were privileged. 18
2. A presentation prepared by company employees and consultants
at the request of in-house counsel, acting in his capacity as inhouse
counsel, to assist counsel in providing legal advice regarding
the proposed consolidation of retiree benefit plans at various
plants and facilities in order to ensure Alcoa’s compliance with its
legal obligations was privileged. 19
3. An e-mail from in-house counsel to a company employee that
involved some business advice was privileged because the business
advice was so intertwined with the underlying legal communication
that it would be impossible to separate the two. 20
4. A retiree health plan summary sheet created by a company
employee with the assistance of consultants, at the direction of inhouse
counsel, to assist in-house counsel in providing Alcoa legal
advice was privileged. 21

20 / JOURNAL OF PENSION PLANNING & COMPLIANCE
In contrast, a magistrate found the privilege applicable to some,
but not all, of a series of memoranda exchanged between an actuarial
firm, the company’s attorney, and the company concerning benefit
changes with respect to which both the actuary and the attorney were
rendering advice. 22 The magistrate ruled that the attorney-client privilege
applied only to documents that were prepared to assist the lawyer
in rendering legal advice and not to those meant to aid the business
decisions of the company’s officers. The magistrate specifically rejected
the claim that all communications from the actuary to the attorney
were necessarily related to the attorney’s performance of her legal advisory
function, pointing out that the lawyer’s role was not solely legal,
because she was also providing the client with “business-related factual
data.” The magistrate also held that the attorney-client privilege did
not cover a summary of legal research performed by a nonattorney at
the actuarial firm, where the research had not been requested by the
company’s attorney.
Another court held that the attorney-client privilege did not apply
to communications made at a committee meeting attended by an inhouse
attorney regarding a decision to fire an employee. 23 The former
employee claimed, inter alia , that his employer fired him to interfere
with his ERISA rights and in retaliation for taking sick leave. In-house
counsel was a nonvoting member of the personnel committee that
decided to terminate the employee. The court noted that, when legal
and business advice are intertwined, the party claiming the privilege
must show that the legal advice predominated. Because the court found
that the lawyer was serving as a member of the committee in a nonlegal
capacity, the employer had to make a “clear showing” that the lawyer
gave advice in a legal capacity for that advice to be privileged. In a
similar case, a district court held that mere attendance of counsel at
an administrative committee meeting where a beneficiary’s claims were
discussed did not render all the proceedings privileged. 24
Another decision found the privilege inapplicable because the
communications related solely to a factual investigation rather than
“legal matters.” 25 The magistrate found that the privilege did not apply
when a senior case manager for an insurer plan administrator e-mailed
a draft denial letter to the insurer’s counsel for review, and the lawyer
edited the letter and provided comments not of a “legal” nature.
Similarly, a district court ruled that letters that individuals charged with
violating ERISA sent to the insurer’s counsel to convince the insurer
to indemnify them and pay for the cost of their defense were not privileged.
26 The court reasoned that the letters to the insurer were not for
the purpose of obtaining legal advice or for use by potential future
defense counsel, because the insureds were seeking counsel of their own

ATTORNEY-CLIENT PRIVILEGE ISSUES IN EMPLOYEE BENEFITS PRACTICE / 21
choice and conceded that the carrier could not defend them due to a
conflict of interest.
Another district court held that the attorney-client privilege did
not apply to questionnaire responses provided by early retirees in their
capacities as witnesses in a case involving misrepresentations about
an early retirement package. 27 Counsel had obtained the names of the
retirees by assuring the court that they were to be contacted as potential
witnesses rather than as prospective clients. The court concluded,
as a result, that the communications were not made for the purpose of
obtaining legal advice. However, questionnaires completed by retirees
after they became clients or while attempting to become clients were
privileged.
Occasionally, other criteria prevent the application of the attorneyclient
privilege in the employee benefits context. In United States v.
Ruehle, the Ninth Circuit concluded that the evidence showed that the
communications at issue were not made “in confidence” but, rather,
for the purpose of disclosure to the company’s outside auditors, and
so were not protected by the attorney-client privilege. 28 A district court
held that the privilege applies only to “communications” between
attorney and client and not to the identities of the client’s representatives.
29 The plaintiff brought an ERISA action against the Life Insurance
Company of North America alleging that she was wrongfully
denied benefits under a long term disability plan underwritten and
administered by the company. 30 In interrogatories and requests for
production, the plaintiff requested information beyond the administrative
claim file, arguing the information was relevant to determining
whether a conflict of interest existed due to the defendant’s dual role
of both funding and administering benefits under the plan. 31 One of
the plaintiff’s interrogatories requested the identity of “all persons
who participated in providing answers to the foregoing Interrogatories,
including counsel.” 32 In response, the defendant “casually” asserted
that communications between counsel and their clients were privileged,
“offering no authority in support of this contention.” 33 The court
granted the plaintiff’s motion to compel the defendant’s answer, holding
that “the identity of the company representatives is not privileged
information.” 34
In United Steelworkers of America. v. IVACO, Inc . , 35 the requirement
that communications must be between “privileged persons” to be
protected prevented the application of the privilege. The district court
held that communications between union counsel and a retiree who was
seeking advice about retiree health benefits were not privileged because
an attorney-client relationship does not generally form between the
union’s attorney and union members, 36 as discussed below.

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THE ATTORNEY-CLIENT PRIVILEGE
IN ENTITY REPRESENTATION
Employee benefits lawyers need to be alert to client identity issues
when representing entities, such as corporate and union plan sponsors
and jointly administered pension and welfare plans. 37 A lawyer retained
or employed by an organization represents it “acting through its duly
authorized constituents.” 38 “Constituents,” as used in the Model Rules,
means “directors, officers, employees, members, shareholders,” and others.
39 When the entity is the sole client, the entity generally can invoke
the attorney-client privilege with respect to a communication between
the lawyer and a constituent. To be privileged, however, the communication
must relate to the subject matter of the representation. 40 In
addition, the constituent must be an “agent” of the organization, but
that includes any lower-echelon employee communicating with counsel
regarding the subject matter of the representation. 41
Generally, the lawyer does not represent the constituents themselves
and must be alert to the potentially divergent interests of the
organization and the constituents with whom the lawyer is working. The
organization’s right to assert the attorney-client privilege with respect to
communications between the organization’s attorney and a constituent
of the organization may not be preserved if the nonclient constituent
later becomes an adverse party. Thus, one case ruled that a constituent
was not prohibited in such circumstances from sharing the privileged
communications with his lawyer. 42 However, if the organization and the
constituent who has become an adverse party were co-clients of the attorney
at the time of the communications, the rules on joint representation
determine the extent to which the attorney-client privilege applies. 43
A constituent may become a co-client by design or inadvertence.
The Restatement recognizes that if an attorney representing an
organization fails to clarify confusion as to the identity of the client,
an attorney-client relationship may inadvertently form between the
attorney and a constituent. 44 Thus, under the Restatement , an attorneyclient
relationship arises if a lawyer knows of, and fails to dispel, a
person’s reasonable reliance on the lawyer to provide legal services. 45
An attorney-client relationship is imputed in such circumstances in
recognition of the fact that, in relations with lawyers, a lay person may
have expectations of loyalty and confidentiality unless the lawyer clearly
explains the capacity in which the lawyer is acting. Conversely, if a
lawyer clarifies to constituents that the entity is the sole client, courts
will reject a constituent’s claim to be a co-client. 46 In addition, a line of
attorney-client privilege cases recognizes a presumption that the attorney
for an entity represents only the entity. 47

ATTORNEY-CLIENT PRIVILEGE ISSUES IN EMPLOYEE BENEFITS PRACTICE / 23
Nevertheless, in contrast to the line of cases holding a corporate
employee has the burden of rebutting the presumption that corporate
counsel represents only the corporate entity, United States v. Nicholas 48
held that outside counsel hired to investigate backdating of executive
stock options had established an attorney-client relationship with the
corporation’s chief financial officer. The corporation had employed
outside counsel to investigate the corporation’s practices regarding stock
option grants to executives under investigation by the Department of Justice
and Securities and Exchange Commission. The district court found
that the corporation’s CFO had a reasonable belief that outside counsel
were representing him because outside counsel had not made clear when
they interviewed him who they were representing. Based on this finding,
the district court held that communications between the CFO and the
lawyers were inadmissible in criminal proceedings against the CFO and
referred the lawyers for possible disciplinary action for divulging those
communications to the Securities and Exchange Commission and the
Department of Justice, without the consent of the CFO, in an effort
to show that the corporate client was cooperating with the prosecutors.
Although the Ninth Circuit reversed the holding that the communications
were protected by the attorney-client privilege on the grounds they
were not made in confidence but, rather, for the purpose of disclosure
to the company’s outside auditors, the Ninth Circuit upheld the factual
finding that an attorney-client relationship existed between the corporation’s
outside counsel and the CFO as not clearly erroneous. 49
THE ATTORNEY-CLIENT PRIVILEGE
IN MULTIPLE REPRESENTATION
“All too often, in ‘real life,’ the same attorney [advises] the plan
sponsor, usually on nonplan matters as well as plan matters, the plan,
and the plan fiduciaries.” 50 In these circumstances, the representation
may be a joint representation or simply concurrent representations.
Confidential communications made between joint clients and their common
attorney relating to matters of common interest are privileged with
respect to third parties. 51 However, a limited exception to the attorneyclient
privilege applies to such communications as between the coclients.
52 Specifically, communications of co-clients with the lawyer that
relate to “matters of common interest” are not privileged from disclosure
to the other co-clients, unless the co-clients have agreed otherwise. 53 The
Model Rules prescribe that, when undertaking multiple representation,
a lawyer must inform the prospective clients of “the implications of the
common representation, including possible effects on . . . the attorneyclient
privilege and the advantages and risks involved.” 54

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Although the privilege generally will not apply where a lawyer,
either intentionally or unintentionally, represents more than one party
with respect to an employee benefit plan and litigation between those
parties ensues, a line of cases holds that, even if a plan fiduciary and the
plan’s participants would otherwise be deemed joint clients of an attorney,
the joint-client exception does not extend to communications of
the plan fiduciary on nonfiduciary matters such as “settlor functions”
the fiduciary may perform in its capacity as plan sponsor. 55 For these
purposes, multiple clients concurrently represented with respect to the
same plan may not be at all times and for all purposes “co-clients” or
“jointly” represented.
THE ATTORNEY-CLIENT PRIVILEGE
IN FIDUCIARY REPRESENTATION
ERISA codifies and modifies certain trust law principles that apply
to those responsible for the management and operation of employee
benefit plans, the plan fiduciaries. 56 Fiduciaries must act solely in the
interests of plan participants when engaged in plan administration—for
example, investing plan assets, deciding benefit claims, or communicating
with participants about the plan—but not if and when they perform
“settlor functions” such as establishing, amending, or terminating
a plan. 57 Employer and union plan sponsors and trustees of jointly
administered plans engage in both settlor and fiduciary activities, and a
lawyer may advise a client acting in both capacities.
A lawyer advising about employee benefit plan management or litigation
must take care to identify the client and clarify to those involved
whether the plan, the plan sponsor, the trustee or other fiduciary, the
participants, or some or all are clients. 58 In the absence of clarification,
the identity of the client “may depend upon the circumstances and the
law of the jurisdiction.” 59 In ERISA litigation, a number of courts have
held that the attorney-client privilege does not protect communications
between counsel and a party being advised in a fiduciary capacity from
being disclosed to plaintiff plan participants. Two theories have been
advanced in support of a fiduciary exception to the privilege—one
requiring a showing of “good cause” for disclosure, the other not. A
number of cases have also sought to set limits on the fiduciary exception
to the attorney-client privilege.
Cases Where Good Cause Was Required
One theory for recognizing a fiduciary exception to the attorneyclient
privilege derives from a corporate law case, Garner v. Wolfinbarger,
60 which held that, “where the corporation is in suit against its

ATTORNEY-CLIENT PRIVILEGE ISSUES IN EMPLOYEE BENEFITS PRACTICE / 25
stockholders on charges of acting inimically to stockholder interests,
protection of those interests as well as those of the corporation and of
the public require that the availability of the privilege be subject to the
right of the stockholders to show cause why it should not be invoked in
the particular instance.” 61
Although Garner has been criticized, 62 the rationale of the case
was applied in the ERISA context in Donovan v. Fitzsimmons. 63 In
Fitzsimmons , the Department of Labor (DOL) sought to compel discovery
of documents in a suit alleging that various former officials of
a multiemployer pension fund violated their fiduciary responsibilities
by entering into a series of questionable investment transactions. Pension
fund officials resisted the DOL’s motion to compel, invoking in
support the attorney-client privilege. Noting that the DOL was suing
on behalf of 500,000 potential participants and beneficiaries and that
the documents in question were directly relevant to the central issues of
the action, the court adopted a “good cause” exception to the privilege,
similar to the one in Garner . The court explained that whether or not
the Garner rule was applicable in all fiduciary situations, “the pension
fund trustee analogue to the derivative action is particularly well-suited
to the rule’s application.” 64
Following Fitzsimmons , a number of district courts found that, in
litigation by participants and beneficiaries against the plan’s fiduciaries,
attorney-client communications with the fiduciaries could be disclosed
upon a showing of good cause. 65 One court summarized this line of
cases and the rationale behind them, stating that “the applicability of
the privilege requires a ‘good cause’ analysis in which the fiduciary’s
interest in confidentiality is balanced against the beneficiary’s need
for the information in question,” and that the reason for overruling
the privilege on a showing of good cause is that “the attorney-client
privilege, intended to benefit the client (defined as beneficiaries of the
pension plan), should not be used to prevent discovery of a fiduciary’s
breach of the client’s trust.” 66 Some ERISA cases have left unresolved
the question of whether a showing of “good cause” is required to overcome
the attorney-client privilege in ERISA fiduciary litigation, holding
that good cause was established in any event. 67
Where plan participants are stockholders of a sponsor
corporation—either directly or indirectly through their interest in a
plan such as an ESOP—some courts have found the participants may
have access to otherwise privileged communications in their capacity
as stockholders. This occurred, for example, in a Fifth Circuit case,
where the court relied directly on the Garner exception to the attorneyclient
privilege, rather than on Fitzsimmons , in upholding an order
that required production of allegedly privileged documents to ESOP

26 / JOURNAL OF PENSION PLANNING & COMPLIANCE
participants in fiduciary litigation. 68 The plan administrator, which was
also the plan sponsor, had claimed that the fiduciary exception to the
attorney-client privilege applied only to matters where the administrator
was acting in its capacity as plan administrator, not to matters where
it was acting in its capacity as plan sponsor, and that as a result, the
district court should have examined all the documents before ordering
production to determine which ones related to fiduciary functions and
which ones to settlor functions. The Fifth Circuit concluded, however,
that even if some of the documents concerned matters for which the
company was acting as plan sponsor, the participants could obtain
the documents upon a showing of good cause under the exception to
the attorney-client privilege afforded to shareholders of a corporation
in suits against the corporation’s board of directors. 69
In a case brought in the Second Circuit, a magistrate judge also
found that ESOP participants could be viewed as indirect stockholders
in a derivative suit and, as such, could obtain access under Garner
to otherwise privileged communications. 70 In that case, two ESOP
participants had sued multiple defendants, alleging that the ESOP purchased
overvalued employer stock. The judge rejected the defendants’
claim that the number of participants who had sued was inadequate
to establish good cause for disclosure, explaining that the ESOP the
participants represented owned 30% of the company’s stock and that,
in any event, the most important consideration in the Garner analysis is
that there be a fiduciary relationship, which the court found to exist by
virtue of the derivative suit. 71
In a third case, a district court in the Fifth Circuit also acknowledged
the applicability of the Garner doctrine where plan participants
are stockholders of a company, at least indirectly through their interest
in an ESOP. In that case, however, the court found that the participants
had not satisfied the requirement in Garner that good cause be shown
for overcoming the company’s attorney-client privilege. The court noted
that: (1) according to their ESOP account balances, the number of
shares of company stock attributable to the participants who had sued
equaled less than 5,000 out of approximately 14 million shares of outstanding
stock; (2) two of the participants displayed a history of personal
animosity and grudges against the defendants; (3) the participants
could find out what they needed to know about the fiduciaries’ motives
through depositions and discovery without the privileged information;
and (4) the participants’ requests were extremely broad. 72
Cases Where Good Cause Was Not Required
Another theory for recognizing an exception to the attorney-client
privilege in fiduciary litigation was advanced in Washington-Baltimore

ATTORNEY-CLIENT PRIVILEGE ISSUES IN EMPLOYEE BENEFITS PRACTICE / 27
Newspaper Guild, Local 35 v. Washington Star Co., 73 where the court
permitted disclosure to plan participants of communications between
the plan fiduciaries and counsel, because “when an attorney advises a
fiduciary about a matter dealing with the administration of an employees’
benefit plan, the attorney’s client is not the fiduciary personally
but, rather, the trust’s beneficiaries.” 74 The plan participants in that case
had alleged that the plan, its trustees, and the employer had illegally
amended the trust agreement to provide for a reversion of surplus assets
to the employer rather than to the participants. In support of their
claim, the participants relied on an affidavit of former legal counsel to
the plan. The defendant fiduciaries claimed that the affidavit was privileged
because the attorney worked for the outside general counsel to
the plan sponsor and provided legal services to the plan, related trusts,
and the plan sponsor, without any separation of services between these
various activities. The court rejected the claim, finding that, as the true
clients of the firm, the participants had a right to the information, even
without a showing of good cause. 75
The Restatement follows Washington Star . Under the Restatement ,
in a suit brought by a beneficiary charging breach of fiduciary duty by a
trustee or similar fiduciary, a communication is not privileged if it is (1)
relevant to the claimed breach, and (2) was between a fiduciary and its
lawyer “who was retained to advise the trustee concerning the administration
of the trust.” 76 No showing of “good cause” is required. 77
Several circuits also have adopted the theory advanced in Washington
Star that the attorney-client privilege is inapplicable to attorneyfiduciary
communications in suits by participants and beneficiaries
because they are the ultimate clients. For example, in In re Grand Jury
Proceedings (United States v. Doe), 78 the Ninth Circuit approved an
order compelling a fund lawyer to testify regarding conversations he
had with a fund trustee concerning alleged kickbacks from prospective
investment managers. The court found that the attorney-client privilege
was inapplicable because “the ultimate clients of the attorney are as
much the beneficiaries of the plan as the trustees,” and the “need for
beneficiaries to have access to all the details of the plan’s administration
outweighs the needs of the trustees to keep their communications with
attorneys private from their beneficiaries.” 79 The Second Circuit 80 and
Fifth Circuit 81 also have indicated their approval of this theory.
In addition, district courts in a number of circuits have found that
plan participants, as the true clients, may overcome the attorney-client
privilege without requiring a showing of good cause. In most, 82 but
not all, 83 of those cases, the courts have simply omitted any mention
of a good cause requirement. One district court held that the fiduciary
exception applies with equal force to plan trustees and plan fiduciaries

28 / JOURNAL OF PENSION PLANNING & COMPLIANCE
without the “trustee” title, including investment managers, because the
rationale that “a trustee is not ‘the real client’ and thus never enjoyed
the privilege in the first place” would apply no “less powerfully to fiduciaries
that, although not officially termed trustees, represent beneficiaries
of the trust with respect to plan administration.” 84
In an action under ERISA to recover pension benefits that
employees had received before the plan administrator recalculated and
reduced them, the plaintiffs sought access to predecisional communications
between the plan administrator and counsel, and the district court
upheld the plaintiffs’ argument that the fiduciary exception applied. 85
The court distinguished between the “predecisional” phase of benefit
determination and “post-decisional” phase of benefit determination:
where a plan administrator seeks the advice of counsel in the “predecisional”
phase of benefit determination, the fiduciary exception applies,
and attorney-client communications must be disclosed. The court
found there was no dispute that the documents the plaintiffs sought
were created in the “predecisional” phase of the plan administrator’s
decision to recalculate and reduce the plaintiffs’ pension benefits. Further,
the plaintiffs noted that there was no dispute among the parties
that the documents the plaintiffs sought reflected communications
between the plan administrator and counsel regarding “plan administration”—“namely,
the determination that pension benefits had been
incorrectly calculated, and the recalculation of the purportedly correct
amounts.” 86
In an action by plan participants to “clarify their rights” to future
retirement benefits under the terms of a retirement plan, another district
court signaled its willingness to recognize the fiduciary exception.
87 In response to the plaintiffs’ document requests, the employer
withheld several documents on the basis of the attorney-client and
work product privileges. 88 The plaintiffs claimed that the documents
were not privileged because they were generated or reviewed in connection
with the employer’s administration of the plaintiffs’ benefit
claims and were therefore subject to the “fiduciary exception.” 89 T h e
defendant maintained that the district court should not apply the fiduciary
exception because the Eleventh Circuit had never before applied
the fiduciary exception in the context of an ERISA case. 90 The court
held that the defendants had failed to provide any legal or factual
explanation as to why the court should not apply the fiduciary exception,
stating “Indeed, application of this doctrine to ERISA actions
finds significant support in federal case law.” 91 Accordingly, the court
ordered the defendant to submit the documents for an in camera
review so that it could determine which privileges, if any, applied to
them. 92

ATTORNEY-CLIENT PRIVILEGE ISSUES IN EMPLOYEE BENEFITS PRACTICE / 29
Limitations on the Fiduciary Exception
A number of courts have limited or qualified the scope of the
fiduciary exception to the attorney-client privilege on various grounds. 93
One district court has held the fiduciary exception inapplicable to “top
hat” plans altogether because such plans are not subject to ERISA’s
fiduciary responsibility provisions. 94 Other cases have identified circumstances
to which the rationale of the fiduciary exception does not
extend.
Settlor Versus Fiduciary Functions
Some courts have recognized a limitation on the fiduciary exception
for communications that pertain to an employer’s settlor function
with respect to a plan because the employer as settlor is different from
the employer as fiduciary. 95 In the case of In re Long Island Lighting
Co., 96 the Second Circuit held that, even if a company used the same
attorney to advise it on settlor functions (such as amending or terminating
its plan) and fiduciary functions (such as administering the plan),
communications that related solely to the client’s settlor functions could
be withheld as privileged. The court in Long Island Lighting disagreed
with a passage in Washington Star to the extent the passage could be
read to mean that an employer needs to secure separate legal counsel
if it wishes to maintain the confidentiality of all its communications
with counsel about the plan. 97 The employer in Washington Star had
argued that, because a law firm advised it in its employer capacity, not
just its fiduciary capacity, with regard to the plan, the employer should
be entitled to assert the privilege with respect to the communications
sought in that case, notwithstanding the fiduciary exception. The court
in Washington Star had rejected that argument. 98
In Bland v. Fiatallis North America, Inc., 99 the Seventh Circuit
expressly followed Long Island Lighting , ruling that the fiduciary exception
is not applicable to attorney-client communications about plan
amendments, as amending a plan is a settlor function. In other circuits,
several district courts have recognized a limitation on the fiduciary
exception for communications that pertain to an employer’s settlor
function. 100 However, district courts have disagreed about the scope of
this limitation on the fiduciary exception. 101
Personal Liability Versus Plan Administration
The Ninth Circuit has taken a somewhat different approach in circumscribing
the reach of the fiduciary exception to the attorney- client
privilege. In United States v. Mett, 102 the court drew a line by distinguishing
between communications that relate to plan administration
and those that relate to a fiduciary’s personal liability. A lawyer who

30 / JOURNAL OF PENSION PLANNING & COMPLIANCE
represented the fiduciaries, the plan, and the company was asked at trial
to produce memos he had sent to the fiduciaries advising them on their
liability for having previously “borrow[ed] approximately $800,000 . . .
without adequate security” from the plan. 103 The Ninth Circuit held that
the advice regarding the fiduciaries’ personal liability was protected by
the privilege as personal advice, as distinguished from ongoing plan
administration advice. 104
Many district courts have applied the Mett analysis to protect the
attorney-client privilege of various communications, including legal
advice about potential liability in amending and designing a plan, legal
advice related to the potential exposure of the trustees in their personal
capacity, and counsel’s comments on drafts of letters responding to specific
benefit “inquiries, complaints, and claims,” although other general
legal advice concerning the plan was subject to disclosure. 105
Several other courts applied the Mett analysis to claims litigation,
and concluded that, in that context, postdecisional advice was protected
by the attorney-client privilege, although predecisional advice must be
disclosed. 106 For example, in one case where a participant challenged a
plan’s decision to terminate COBRA coverage, the court relied on Mett
in concluding that a line should be drawn based on the date the plan
administrator notified the participant that it was discontinuing COBRA
coverage. 107 Advice provided by the plan’s attorney following that date
was privileged, but advice provided before then was not. Another
court held that an e-mail to in-house counsel regarding overpayment
of benefits was privileged because it was created after the lawsuit had
been filed, and it sought a legal opinion about matters pertaining to the
action. 108 In contrast, documents created before the final denial of benefits
were not privileged, including e-mails and memos to and from the
employer’s corporate counsel regarding the termination of benefits and
the progress of the appeal of the benefits decision. With respect to these
documents, the court reasoned that “[t]here [was] no indication . . . that
[counsel] was consulted for the purpose of defending [the employer]
against any decision made as to Plaintiff’s claim. Rather, it appears
that [counsel] was consulted in the context of the claims review process
itself.” 109 Adopting a similar approach, the court in Lewis v. UNUM
Corp. Severance Plan 110 found that the attorney-client privilege did not
shield advice given by inside and outside counsel during a predecisional
administrative meeting concerning the participant’s claim for severance
benefits. The court rejected the argument that the advice was privileged
because it had been rendered to defend the plan fiduciaries against a
future claim. If such an argument were accepted, the court reasoned,
a beneficiary could never discover the predecisional legal advice of the
plan administrator’s counsel. Instead, the court concluded that denying

ATTORNEY-CLIENT PRIVILEGE ISSUES IN EMPLOYEE BENEFITS PRACTICE / 31
benefits to a beneficiary is as much a part of plan administration as
conferring benefits, and therefore “the prospect of post-decisional litigation
against the plan is an insufficient basis for gainsaying the fiduciary
exception to the attorney-client privilege.” 111
In a case involving attorney-client communications regarding
administrative claims of beneficiaries who had already filed suit, another
district court rejected the fiduciary exception argument advanced by the
plaintiffs because the plan fiduciary retained counsel in order to defend
against the plan beneficiaries. 112 Two labor unions and two groups of
former Boeing employees brought suit against Boeing, Spirit Airlines,
and various employee benefit plans, in order to enforce collective bargaining
agreements between the unions and Boeing and secure favorable
rulings concerning pension and health benefits for certain employees
between ages 49 and 55. The plaintiffs moved to compel the defendants
to produce documents that the defendants claimed were protected by
the attorney-client privilege and/or attorney work product doctrine. The
plaintiffs argued that the fiduciary exception applied and that ERISA
beneficiaries are entitled to discover the legal advice that guides a plan
administrator in interpreting their eligibility for benefits.
The defendants countered, and the court agreed, that the fiduciary
exception did not apply because the beneficiaries had already
commenced litigation and the plan fiduciary had retained counsel in
order to defend itself against the beneficiaries. The court found that the
plan fiduciary had retained counsel for legal advice precisely because
the plaintiffs had already commenced litigation and alleged that it had
breached its fiduciary duties to the beneficiaries. Therefore, “the legal
fiction of the trustee as a representative of the beneficiaries’ [was] dispelled.
. . . The legal advice was sought because of the pending litigation
and claims of personal liability; thus, the attorney-client privilege
remains intact.” 113 Additionally, the plaintiffs argued that they only
sought to discover advice on plan interpretation, rather than advice
relating to a fiduciary’s personal liability, and so should be entitled to
these communications. Dismissing this argument, the court held that
“the implied suggestion that counsel could provide meaningful advice
to the [plan fiduciary] concerning personal liability without evaluating
the language of the plan is simply not persuasive.” 114
In a footnote, the court noted that the plaintiffs relied heavily on
Lewis v. UNUM Corp. Severance Plan 115 to support their claim for
production. 116 The court distinguished Lewis on the grounds that the
legal communication ordered there was both “predecision” and “prelitigation”
and “[m]ost significantly,” the court observed, “the claim
in Lewis was limited to a request for benefits under the plan. The circumstances
in this case are materially different from those presented in

32 / JOURNAL OF PENSION PLANNING & COMPLIANCE
Lewis because these consolidated lawsuits include a count against the
[plan fiduciary] personally for breach of fiduciary duty.” 117
Mutual Versus Divergent Interests
Some cases have suggested that the fiduciary exception to the
privilege only applies where there is a mutuality of interest between
the parties, and therefore does not apply to fiduciary communications
with plan counsel after the interests of the fiduciary and plan beneficiaries
diverge. For example, the Fifth Circuit affirmed the findings of a
magistrate judge that the attorney-client privilege barred disclosure of
communications between the administrator of a plan and outside trial
counsel for the plan sponsor, reasoning that there had never been the
“mutuality of interests” between the parties required for the fiduciary
exception to apply, as all the communications with trial counsel were
made for the purpose of defending the lawsuit and did not deal with
plan administration. 118 In the same case, the magistrate found that,
while the fiduciary exception to the attorney-client privilege permitted
disclosure of communications between the sponsor’s regular in-house
counsel and the plan administrator that occurred before suit was filed,
the exception was inapplicable to similar communications that occurred
after suit was filed, because the interests of the parties diverged at that
point. 119 In another case, a district court held that the fiduciary exception
to the privilege permitted disclosure of communications between
a bank that was serving as plan trustee and a law firm that represented
the bank, but that the exception was applicable only to communications
about matters of plan administration, and would not apply to matters
on which there was a potential conflict or divergence of interests
between the bank trustee and the beneficiaries. 120 These cases were all
decided prior to Mett and would appear to be subsumed in its rationale,
where it applies. 121
A post- Mett case, in which the plaintiffs had noted that they did
not seek to impose personal liability on the plan administrator, held
that the fiduciary exception to the attorney-client privilege was warranted
when the documents sought by plan beneficiaries were created
in the predecisional phase of the plan administrator’s decision and
because the administrator invoked the attorney-client privilege against
the plan beneficiaries. 122 The magistrate judge had declined to apply
the fiduciary exception on two grounds: (1) “Plaintiffs [were] former
employees of the Defendant employer who had already begun to receive
pension benefits, so that they and the plan administrator would invariably
be in an ‘adversarial’ posture as soon as the plan administrator
commenced the inquiry whether these benefit payments were erroneous
and should be recalculated”; and (2) “at least some of Plaintiffs were

ATTORNEY-CLIENT PRIVILEGE ISSUES IN EMPLOYEE BENEFITS PRACTICE / 33
not merely plan participants but, while still employed, had played roles
in the administration and operation of the plan.” 123 The district court
held that neither of these considerations was sufficient to overcome the
applicability of the fiduciary exception:
[I]n this case, even if the plan administrator viewed it as likely
that the recalculation of Plaintiffs’ benefits would result in
litigation, and even if the decision to consult with counsel
was motivated in part by this likelihood of eventual litigation,
this Court finds that this prospect, standing alone, is
insufficient to preclude a plan beneficiary’s access to predecisional
communications between a plan administrator and
counsel concerning matters of plan administration. 124
Courts also have considered the mutuality of interests when
deciding on the application of the fiduciary exception to communications
between insurers and their attorneys. The Third Circuit, in a
case involving communications between insurers and their attorneys
with respect to health insurance benefit determinations, held that the
fiduciary exception did not apply, distinguishing an insurer fiduciary
from other ERISA fiduciaries to which the fiduciary exception has
been applied. 125 District courts in different circuits have disagreed about
the validity of this distinction: two have followed Wachtel , 126 one held
that the fiduciary exception did apply to communications between an
insurer’s in-house counsel and claims personnel in connection with
processing a claim for benefits and before a final benefits determination
was made, 127 and another ordered the defendant to brief the issue of
whether the fiduciary exception applied before it made a final determination
as to whether an internal memorandum created by the insurerdefendant’s
in-house attorney at the request of a claim analyst should
be turned over to the plaintiff. 128
CONCLUSION
A lawyer engaging in entity representation must take care to clarify
to constituents that the organization, and not the constituent, is the client,
so as not to inadvertently establish an attorney-client relationship
with a constituent which may jeopardize the entity’s attorney-client privilege.
A lawyer who undertakes joint representation should inform the
prospective co-clients that the attorney-client privilege does not protect
communications of co-clients with the lawyer with respect to “matters
of common interest” from disclosure to the other co-clients, unless the
co-clients have agreed otherwise. A lawyer engaging in representation of

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ERISA fiduciaries must identify the “true” client and whether the representation
will be regarded as joint representation. The lawyer should
clarify to those involved whether the employer, union, plan, trustee(s),
or other fiduciaries, beneficiaries—or some or all—are clients and how
that will affect the application of the attorney-client privilege. The lawyer
should take care not to jeopardize attorney-client privilege protection
and also recognize that the application of the attorney-client privilege
will vary as circumstances change. Lawyers representing plan beneficiaries
in litigation against a plan, plan sponsor(s), trustee(s), or other fiduciaries
need to analyze the relationships and activities of the defendants
and the context of communications between the defendants and their
counsel to ascertain which communications are vulnerable to discovery.
NOTES
1. See Model Rules of Professional Conduct R. 1.6 (as amended in 2003). For example, commentary
to the Model Rules observes that the obligation of confidentiality requires a lawyer
to protect against waiver of the privilege and invoke the privilege when it is applicable [R. 1.6
cmt. [13]].
2. Id. R. 1.4(b) (as amended in 2002).
3. See id . R. 1.1 (as amended in 2002).
4. See id . R. 1.3 (as amended in 2002).
5. 29 U.S.C. § 1001 et seq.
6. Robert W. Tuttle, “The Fiduciary’s Fiduciary: Legal Ethics in Fiduciary Representation,” 1994
Ill. L. Rev. 889 (1994). Many of the ERISA cases draw support from earlier trust law cases.
One of the most frequently cited of the trust law cases is Riggs Nat’l Bank of Wash., D.C. v.
Zimmer, 355 A.2d 709 (Del. Ch. 1976), where the court wrote:
As a representative for the beneficiary of the trust which he is administering, the trustee
is not the real client in the sense that he is personally being served. And, the beneficiaries
are not simply incidental beneficiaries who chance to gain from the professional services
rendered. The very intention of the communication is to aid the beneficiaries. The trustees
here cannot subordinate the fiduciary obligations owed to the beneficiaries to their
own private interests under the guise of attorney-client privilege. The policy of preserving
the full disclosure necessary in the trustee-beneficiary relationship is here ultimately more
important than the protection of the trustees’ confidence in the attorney for the trust. . . .
The fiduciary obligations owed by the attorney at the time he prepared the memorandum
were to the beneficiaries as well as to the trustees. In effect, the beneficiaries were the
clients of [the attorney] as much as the trustees were, and perhaps more so.
Id . at 713–714 (emphasis in original).
7. See Fed. R. Evid. 501 (recognizing common law privileges). In Mohawk Industries v.
Carpenter, 558 U.S. __, 130 S. Ct. 599 (2009), the Supreme Court resolved a conflict among
the courts of appeals as to whether a district court’s order to produce materials asserted to
be protected by the attorney-client privilege is immediately appealable. Federal law authorizes

ATTORNEY-CLIENT PRIVILEGE ISSUES IN EMPLOYEE BENEFITS PRACTICE / 35
United States Courts of Appeals to take appeals from “final decisions of the district courts”
[28 U.S.C. § 1291]. In Cohen v. Beneficial Industrial Loan Corporation, 337 U.S. 541 (1949),
the Supreme Court recognized as “final” collateral orders that do not terminate an action but
that conclusively determine the disputed question, resolve an important issue separate from
the merits, and are effectively unreviewable on appeal from a final judgment. In Mohawk , the
Court held that disclosure orders adverse to the attorney-client privilege are not immediately
appealable because effective appellate review is available by other means.
8. See Christopher B. Mueller & Laird C. Kirkpatrick, Evidence Practice Under the Rules
§ 5.8 (2d ed. 1999).
9. See, e.g. , Arcuri v. Trump Taj Mahal Assocs., 154 F.R.D. 97, 103–104 (D.N.J. 1994) (finding
attorney-client privilege applicable to advice given by union counsel to court-appointed union
monitor); Martin v. Valley Nat’l Bank, 140 F.R.D. 291, 304–305 (S.D.N.Y. 1991) (applying
privilege to attorney advice where plan fiduciaries sought production of documents from the
DOL); American Standard, Inc. v. Pfizer Inc., 828 F.2d 734, 745 (Fed. Cir. 1987) (holding that
the privilege should be applied to “lawyer-to-client communications that reveal, directly or
indirectly, the substance of a confidential communication by the client”).
10. See Restatement (Third) of the Law Governing Lawyers §§ 78–80 (2000) [hereinafter
Restatement]. The American Law Institute (ALI) published the Restatement in August 2000.
The Restatement seeks to codify decisional law and statutes that apply in proceedings, evidentiary
hearings, and criminal prosecutions relating to attorney discipline, malpractice, and
disqualification. Including Reporter’s Notes, comments, and case citations, the Restatement
provides a convenient summary of many of the principles that apply in this area, and is referenced
below where relevant.
11. See, e.g. , id. § 82 (exception for a communication in furtherance of a crime or fraud).
12. Id . § 68.
13. United States v. Ruehle, 583 F.3d 600, 607 (9th Cir. 2009) (citations omitted).
14. 2009 U.S. Dist. LEXIS 21964, 2009 WL 559705 (E.D. Cal. Mar. 4, 2009).
15. 2009 WL 559705, at *1.
16. Id .
17. Curtis v. Alcoa Inc., 2009 U.S. Dist. LEXIS 71581, 2009 WL 838232, at *1 (E.D. Tenn.
Mar. 27, 2009).
18. 2009 WL 838232, at *3.
19. Id .
20. Id . at *7.
21. Id . at *8.
22. Byrnes v. Empire Blue Cross Blue Shield, 1999 U.S. Dist. LEXIS 17281, at **5-15 (S.D.N.Y.
Nov. 2, 1999) (magistrate’s order).
23. Neuder v. Battelle Pac. Nw. Nat’l Lab., 194 F.R.D. 289, 292–295 (D.D.C. 2000).
24. Lewis v. UNUM Corp. Severance Plan, 203 F.R.D. 615 (D. Kan. 2001). Therefore, discussions
among committee members at the meeting were not privileged, nor were the committee members’
opinions, impressions, and conclusions based on what was done at the meeting.
25. Asuncion v. Met. Life, 493 F. Supp. 2d 716, 721 (S.D.N.Y. 2007) (magistrate’s order).
26. Aiena v. Olsen, 194 F.R.D. 134, 135–136 (S.D.N.Y. 2000).

36 / JOURNAL OF PENSION PLANNING & COMPLIANCE
27. Hudson v. General Dynamics, 186 F.R.D. 271, 275–276 (D. Conn. 1999).
28. 583 F.3d 600 (9th Cir. 2009).
29. Kalp v. Life Insurance Co. of North America, 2009 WL 261189, at *10 (W.D. Pa. Feb. 4, 2009)
(citation omitted).
30. Id . at *1.
31. Id .
32. Id . at *9.
33. Id . at *10.
34. Id.
35. 2003 U.S. Dist. LEXIS 10008, 29 E.B. Cases (BNA) 2897 (N.D. Ga. Jan. 13, 2003).
36. Further, counsel had explicitly disclaimed the attorney-client relationship with respect to the
individual retirees. 2003 U.S. Dist. LEXIS 10008, at **7-9.
37. See Model Rules of Professional Conduct R. 1.13(a) (as amended in 2003). See also
Restatement § 96 (defining the role of the lawyer representing an organization). Neither draws
any distinction between in-house and outside counsel, nor among types or sizes of entities.
38. Model Rules of Professional Conduct R. 1.13(a) (as amended in 2003).
39. Id . R. 1.13(f).
40. Restatement § 73(3).
41. Id. § 73(2) & cmt. d ; Upjohn Co. v. United States, 449 U.S. 383, 101 S. Ct. 677 (1981).
42. Amatuzio v. Gandalf Sys. Corp., 932 F. Supp. 113 (D.N.J. 1996). In that case, a number of
employees sued their former employer claiming, inter alia , that reducing severance benefits
under a longstanding plan violated ERISA. One employee who was not initially included in
the plaintiff class, but who later joined it, had been present when the responsible parties at the
company discussed the challenged decision with corporate counsel. The court concluded that
the plaintiffs’ lawyer could properly “debrief” that employee about those communications. The
court summarized its holding as follows:
The court holds that communications with a corporation’s attorney made by, to, or in the
presence of a nonattorney employee who later becomes adverse to the corporation are
not protected by [the ethical rules] or the attorney-client privilege from disclosure by the
former employee to his litigation counsel if (i) the litigation involves an allegation by the
employee that the corporation breached a statutory or common law duty which it owed
to the employee, (ii) the communication disclosed involves or relates to the subject matter
of the litigation, and (iii) the employee was not responsible for managing the litigation or
making the corporate decision which led to the litigation.
Id. at 118. The court emphasized, however, that the opinion was limited to the issue of whether
the information could be disclosed to the employee’s attorney, and should not be construed
as a ruling that the company had waived the attorney-client privilege with respect to any particular
communication, or that the company was foreclosed from claiming the attorney-client
privilege with respect to the communications in subsequent proceedings.
43. See infra “The Attorney-Client Privilege in Multiple Representation.”
44. Restatement § 14.
45. Id. § 14 & cmt. f (specifically discussing the application of § 14 to organizational and fiduciary
clients). In some circumstances, a lawyer may also owe duties to a constituent of an

ATTORNEY-CLIENT PRIVILEGE ISSUES IN EMPLOYEE BENEFITS PRACTICE / 37
organization pursuant to Restatement § 15, which recognizes that a lawyer owes duties of confidentiality
and care to a person who discusses the possibility of forming an attorney- client
relationship, even when no such relationship ensues. See also Model Rules of Professional
Conduct R. 1.18 (“Duties to Prospective Client”); Barton v. United States Dist. Court, 410
F.3d 1104 (9th Cir. 2005) (holding under California law that a law firm’s questionnaire, completed
by prospective clients through the firm’s website, was submitted in the course of an
attorney-client relationship for confidentiality purposes, notwithstanding the existence of a
website disclaimer).
46. See, e.g. , Sheet Metal Workers Int’l Ass’n v. Sweeney, 29 F.3d 120 (4th Cir. 1994), which held
that outside counsel specially retained to defend a fund in criminal proceedings involving an
investment of the fund’s assets never personally represented the pension fund’s former counsel,
Sweeney, who had counseled the fund with respect to the investment. The appellate court
accepted the district court’s finding that the outside lawyers had apprised Sweeney from the
beginning that they were representing only the fund. Accordingly, Sweeney’s attempt to assert
the attorney-client privilege by quashing a grand jury subpoena of the new firm failed, as did
his attempt to disqualify the firm in related civil litigation. Id. at 124–126.
47. See, e.g. , In re Grand Jury Subpoena (Custodian of Records, Newparent, Inc.), 274 F.3d 563,
571–572 (1st Cir. 2001) (citing In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d
120, 123 (3d Cir. 1986)); Grand Jury Proceedings v. United States, 156 F.3d 1038, 1041 (10th
Cir. 1998); United States v. International Bhd. of Teamsters, 119 F.3d 210, 215 (2d Cir. 1997);
and In re Sealed Case, 29 F.3d 715, 719 n.5 (D.C. Cir. 1994) (imposing on constituents the burden
of rebutting the presumption that counsel for an organization represents only the entity).
48. 606 F. Supp. 2d 1109 (C.D. Cal. 2009).
49. United States v. Ruehle, 583 F.3d 600 (9th Cir. 2009). The Ninth Circuit further held that the
lawyers’ violation of their ethical obligations in counseling the corporation to disclose without
obtaining the consent of the chief financial officer did not provide an independent basis for
suppression of the communications. Id . at 613. On remand, the district court in United States
v. Ruehle, No. SA CR 08-139-CJC (C.D. Cal. Dec. 15, 2009) dismissed the charges against the
CFO on the grounds of prosecutorial misconduct. On January 7, 2010, the United States filed
an appeal to have the stock options backdating charges reinstated.
50. Sherwin P. Simmons, “Who Are the ERISA Clients? Plan Fiduciaries or Plan Participants?” 55
Tax Notes 1240, 1242 (1992).
51. Restatement § 75(1 ); Christopher B. Mueller & Laird C. Kirkpatrick, Evidence Practice Under
the Rules § 5.14 (2d ed. 1999).
52. Restatement § 75(2).
53. Id . § 75 cmt. d .
54. Model Rules of Professional Conduct R. 1.7 cmt . [18] (as amended in 2002).
55. See infra “Settlor Versus Fiduciary Functions.”
56. 29 U.S.C. § 1104(a).
57. Defining what constitutes “plan administration” is often at the heart of discovery disputes and
the applicability of the fiduciary exception. The plaintiff’s position is usually that relevant communications
constitute matters of plan administration, whereas defendants characterize them as
related to nonfiduciary matters (e.g., settler functions or fiduciary liability). See, e.g. , Beesley v.

38 / JOURNAL OF PENSION PLANNING & COMPLIANCE
Int. Paper Co., No. 06-703-DRH, 2008 WL 2323849 (S.D. Ill. June 3, 2008); Comrie v.
Ipso, Inc., No. 08 C 3060, 2009 WL 4403364 (N.D. Ill. Nov. 30, 2009); Shields v. UNUM
Provident Corp., No. 2:05-CV-744, 2007 WL 764298 (S.D. Ohio Mar. 9, 2007); Kanawi v.
Bechtel Corp., No. C 06-05566 CRB, 2008 WL 4104286 (N.D. Cal. Sept. 3, 2008).
58. See Restatement § 14 cmt. f (under “Formation of a Client Lawyer Relationship”) [hereinafter
Restatement]. The Comment states: “In trusts and estates practice a lawyer may have to clarify
with those involved whether a trust, a trustee, its beneficiaries or groupings of some or all of
them are clients and similarly whether the client is an executor, an estate, or its beneficiaries. In
the absence of clarification the inference to be drawn may depend on the circumstances and on
the law of the jurisdiction. Similar issues may arise when a lawyer represents other fiduciaries
with respect to their fiduciary responsibilities, for example a pension-fund trustee or another
lawyer.”
59. Id .
60. 430 F.2d 1093 (5th Cir. 1970).
61. Id. at 1103–1104. See also Restatement § 85 (“Communications Involving a Fiduciary Within
an Organization”).
62. See, e.g. , Stephen A. Saltzburg, Michael M. Martin, & Daniel J. Capra, 2 Federal Rules of
Evidence Manual § 501.02[5][l][ii] (8th ed. 2002) (questioning justification for Garner ); Milroy
v. Hanson, 875 F. Supp. 646 (D. Neb. 1995). The Milroy court observed that “[m]any commentators
believe ‘ Garner was wrong and . . . the attorney-client privilege in shareholder cases
should apply just a[s] it does in other litigation.’” Id. at 651 (quoting Stephen A. Saltzburg,
Corporate Attorney Client Privilege in Shareholder Litigation and Similar Cases : Garner
Revisited , 12 Hofstra L. Rev. 817, 840 (1984)). The court noted that even those who approved
Garner have recognized the issue as “currently unresolved and troublesome[.]” Id. (quoting
Jack B. Weinstein et al., Weinstein’s Evidence 503(b)[05], at 503, 593–598 (1992)).
63. 90 F.R.D. 583, 2 E.B. Cases (BNA) 1393 (N.D. Ill. 1981).
64. Id. at 586.
65. E.g. , Harper-Wyman v. Connecticut Gen. Life Ins. Co., 1991 WL 62510, at *2 (N.D. Ill.
Apr. 17, 1991); Quintel Corp. v. City Bank, 567 F. Supp. 1357, 1364 (S.D.N.Y. 1983); Felts v.
Masonry Welfare Trust, 3 E.B. Cases 2490 (BNA) (D. Or. 1982).
66. Harper-Wyman , 1991 WL 62510, at *2.
67. Martin v. Valley Nat’l Bank, 140 F.R.D. 291, 326–327 (S.D.N.Y. 1991); Helt v. Metropolitan
Dist. Comm’n, 113 F.R.D. 7, 10 n.2, 7 E.B. Cases (BNA) 2617 (D. Conn. 1986).
68. In re Occidental Petroleum Corp., 217 F.3d 293, 297–298 (5th Cir. 2000).
69. The court found the corporate exception to the privilege available even though the plaintiffs
in the case owned the corporate stock only indirectly, through the ESOP. The court reasoned
that the participants were suing on behalf of the ESOP, and that the ESOP was a shareholder
[ In re Occidental Petroleum Corp. , 217 F.3d at 297].
70. Henry v. Champlain Enters., 212 F.R.D. 73, 85 (N.D.N.Y. 2003) (ordering production of documents
for in camera review).
71. Id. at 86.
72. Thompson v. Avondale Indus., Inc., 2001 U.S. Dist. LEXIS 15674, at **5-14, 2001 WL
1135619, at **2-6 (E.D. La. Sept. 25, 2001).

ATTORNEY-CLIENT PRIVILEGE ISSUES IN EMPLOYEE BENEFITS PRACTICE / 39
73. 543 F. Supp. 906, 3 E.B. Cases (BNA) 1741 (D.D.C. 1982).
74. F. Supp. at 909.
75. The court reasoned that the Garner “good cause” inquiry was inapplicable in a trustee relationship
because “there exists no legitimate need for a trustee to shield his actions from those
whom he is obligated to serve. In other words, while corporate managers perform duties which
‘run to the benefit ultimately of the stockholders,’ . . . a pension plan trustee directly serves the
fund beneficiaries.” Id . at 909 n.5 (citations omitted; emphasis in original).
76. Restatement § 84. Comment a to § 84 explains that “[t]his Section states an exception to the
attorney-client privilege stemming from a fiduciary relationship between the client and a
person to whom the client owes fiduciary duties. The Section assumes that the fiduciary client
could otherwise assert the privilege.”
77. Restatement § 84, cmt. b .
78. 162 F.3d 554, 22 E.B. Cases (BNA) 2261 (9th Cir. 1998).
79. 162 F.3d at 556. The court also held that the fiduciary exception doctrine allows the government
to overcome an assertion of privilege when the government “is seeking to vindicate
the rights of ERISA beneficiaries.” Id . (citing United States v. Evans, 796 F.2d 264 (9th Cir.
1986)).
80. In re Long Island Lighting Co., 129 F.3d 268, 271–272, 21 E.B. Cases (BNA) 2025 (2d Cir.
1997) (explaining that “[a]n ERISA fiduciary cannot use the attorney-client privilege to narrow
the fiduciary obligation of disclosure owed to the plan beneficiaries. . . . Thus, an employer acting
in the capacity of ERISA fiduciary is disabled from asserting the attorney-client privilege
against plan beneficiaries on matters of plan administration” (citations omitted)). See also
Hudson v. General Dynamics, 186 F.R.D. 271, 273–274 (D. Conn. 1999) (applying principle
that when a lawyer advises a fiduciary about a matter dealing with the administration of an
employee benefit plan, the lawyer’s client is not the fiduciary personally, but rather the plan’s
beneficiaries).
81. Wildbur v. ARCO Chem. Co., 974 F.2d 631, 645 (5th Cir. 1992) (stating that “[w]hen an
attorney advises a plan administrator or other fiduciary concerning plan administration, the
attorney’s clients are the plan beneficiaries for whom the fiduciary acts, not the plan administrator.
Therefore, an ERISA fiduciary cannot assert the attorney-client privilege against a plan
beneficiary about legal services dealing with plan administration”) (citations omitted).
82. Vaughan v. Celanese Ams. Corp., 2006 U.S. Dist. LEXIS 89888, at **12–13 (W.D.N.C. Dec.
11, 2006) (compelling the production of documents on grounds that, in the ERISA context, a
party may not claim attorney-client privilege as to documents that relate to plan administration);
Rock v. UNUM Life Ins. Co., 167 F.R.D. 88, 90 (D. Colo. 1996), judgment on merits
aff’d, 198 F.3d 258 (10th Cir. 1999) (denying employer’s motion for protective order to preclude
plaintiff’s deposition of in-house counsel with respect to interpretation of disability plan terms;
reasoning that in-house counsel was “not opposing counsel” with respect to plaintiff in action
to recover disability benefits but, rather, attorney for the plan beneficiaries); Hammond v.
Trans World Airlines, 1991 WL 93498, at *2 (N.D. Ill. May 22, 1991) (ordering production of
documents prepared by company’s in-house attorneys and those of outside counsel retained
to advise plan fiduciaries during the plan termination process; reasoning that the defendants
were fiduciaries, and that when an attorney advises a fiduciary about a matter dealing with the

40 / JOURNAL OF PENSION PLANNING & COMPLIANCE
administration of an employee benefit plan, the attorney’s client is not the fiduciary personally
but rather the trust’s beneficiaries); Petz v. Ethan Allen, Inc., 113 F.R.D. 494, 497 (D. Conn.
1985) (holding the attorney-client privilege inapplicable because, “[w]hen an attorney advises
a fiduciary about a matter dealing with the administration of an employees’ benefit plan, the
attorney’s client is not the fiduciary personally but, rather, the trust’s beneficiaries”).
83. Henry v. Champlain Enters., 212 F.R.D. 73, 85 (N.D.N.Y. 2003) (reviewing Second Circuit case
law and concluding that no showing of good cause is required); Jackson v. Capital Bank &
Trust Co., 1991 WL 148751, at *2 (E.D. La. July 19, 1991) (finding no need for a showing of
good cause in upholding a magistrate’s decision that the attorney-client privilege could not be
invoked against ESOP participants, who claimed that the investment of plan assets in overvalued
stock was a breach of fiduciary duty).
84. Kanawi v. Bechtel Corp., 2008 WL 4104286, at ** 1-2 (N.D. Cal. Sept. 3, 2008) (citing United
States v. Mett, 178 F.3d 1058 (9th Cir. 1999)).
85. Redd v. Brotherhood of Maintenance of Way Employees Div. of Int’l Brotherhood of
Teamsters, 2009 U.S. Dist. LEXIS 46288, 2009 WL 1543325, 47 E.B. Cases (BNA) 1865
(E.D. Mich. June 2, 2009). The court further held that its rulings “apply with equal force to
Defendant’s invocation of the work product privilege” [2009 WL 1543325, at *1 n.1]. The
court’s conclusion that the fiduciary exception applies equally to work product finds support
in D.C. Circuit caselaw, e.g., Cobell v. Norton, 213 F.R.D. 1, 10-15 (D.D.C. 2003), Everett v.
USAir Grp. Inc., 165 F.R.D. 1, 5 (D.D.C. 1995), Cavanaugh v. Saul, No. 03-111 (GK), 2007
WL 1601743, at *3 (D.D.C. June 4, 2007), but courts in other districts have held to the contrary.
See, e.g. , Wildbur v. ARCO Chem. Co., 974 F.2d 631, 646 (5th Cir. 1992); Koch v. Exide
Corp., 1989 WL 49515, at *2-3 (E.D. Pa. 1989); Helt v. Metro. Dist. Comm’n, 113 F.R.D. 7,
12 (D. Conn. 1986); Donovan v. Fitzsimmons, 90 F.R.D. 583, 588 (N.D. Ill. 1981).
86. 2009 WL 1543325, at *1.
87. Maltby v. Absout Spirits Co., Inc., 2009 U.S. Dist. LEXIS 29106, 2009 WL 800142 (S.D. Fla.
Mar. 25, 2009).
88. 2009 WL 800142, at *3.
89. Id .
90. Id.
91. Id. at *4.
92. Id.
93. These limitations may not apply where the participants are shareholders relying on the Garner
exception to the privilege. See supra “Cases Where Good Cause Was Required.”
94. Marsh v. Marsh Supermarkets, Inc., 2007 U.S. Dist. LEXIS 28039, at **5-8, 41 E.B. Cases
(BNA) 1110 (S.D. Ind. March 29, 2007).
95. A district court has held that the settlor function rule and, therefore, the fiduciary exception
principles, apply equally to multiemployer and single employer plans. Laborers’ District
Council of the Metropolitan Area of Philadelphia and Vicinity v. Board of Trustees of
Laborers’ Industrial Pension Fund of Philadelphia, 2008 U.S. Dist. LEXIS 44396, at **22-26,
44 E.B. Cases (BNA) 1721 (E.D. Pa. June 5, 2008).
96. 129 F.3d 268, 21 E.B. Cases 2025 (2d Cir. 1997). In earlier proceedings in the case (which
are unreported but are described in the opinion), a magistrate, after directing production of

ATTORNEY-CLIENT PRIVILEGE ISSUES IN EMPLOYEE BENEFITS PRACTICE / 41
various documents, had ruled that the remaining documents concerned plan amendments,
and that the attorney-client privilege insulated the documents from production because the
fiduciary exception did not apply. Id. at 270. The district court had reversed, holding that “if
a fiduciary of the plan uses the same lawyer to provide him advice as to plan amendment as
he uses for plan administration, then the plan administrator must be understood to have either
not intended or to have waived confidentiality as to his communications with that lawyer.” Id.
The Second Circuit disagreed, ruling that the fiduciary exception was limited to matters within
the scope of the fiduciary duty.
97. Id. at 272–273 (discussing Washington Star , 543 F. Supp. at 909–910). It is not clear what the
Washington Star court meant by the phrase “communications about the plan.” The Second
Circuit in Long Island Lighting read that language to indicate the Washington Star court
believed separate counsel was necessary to protect communications between the attorney and
the employer acting in a nonfiduciary capacity. Id.
98. Washington Star Co., 543 F. Supp. at 909–910.
99. 401 F.3d 779, 787-788, 34 E.B. Cases 1875 (7th Cir. 2005).
100. See Beesley v. Int’l Paper Co., 44 E.B. Cases (BNA) 1038 (S.D. Ill. 2008) (holding privileged
legal advice given in connection with plan amendment that replaced “Fiduciary Review
Committee” with “401(k) Committee”); Halbach v. Great-West Life & Annuity Ins. Co.,
2006 U.S. Dist. LEXIS 84591, at **13–14 (E.D. Mo. Nov. 21, 2006) (ruling that when a plan
sponsor seeks legal advice regarding future plan amendments, it is not acting as a fiduciary
for the benefit of beneficiaries); Henry v. Champlain Enters., 212 F.R.D. 73, 85 (N.D.N.Y.
2003) (agreeing in dicta that fiduciary exception applies only when communications relate to
fiduciary functions); Everett v. USAir Group, Inc., 165 F.R.D. 1, 4 (D.D.C. 1995) (indicating
that if an employer could demonstrate that advice given pertained solely to its settlor
activities, such as amending the plan, then it could maintain the privilege notwithstanding the
fiduciary exception; the court, however, held that the employer had not made such a showing);
In re Unisys Corp. Ret. Med. Benefits ERISA Litig., 1994 WL 6883, at *3 (E.D. Pa.
Jan. 6, 1994) (holding that if certain documents contained communications between counsel
and management concerning the decision to terminate the plan, which is not a fiduciary function,
then the fiduciary exception would not apply and the documents would be protected
from discovery).
101. Compare Tatum v. R.J. Reynolds Tobacco Co., 247 F.R.D. 488, 495–497 (M.D.N.C. 2008) (ruling
that legal advice concerning adoption of a plan amendment eliminating a company stock
fund was privileged while the fiduciary exception applied to advice relating to communication
of the amendment to participants), Kanawi v. Bechtel Corp., 2008 U.S. Dist. LEXIS 76604
(N.D. Cal.) (holding documents relating to how to communicate plan changes to participants
must be produced pursuant to the fiduciary exception) and Baker v. Kingsley, 2007 U.S. Dist.
LEXIS 8375, at **8-18 (N.D. Ill. Feb. 5, 2007) (holding that the fiduciary exception applied
to drafts of communications between the plan sponsor and outside counsel concerning how
changes in benefit plans would be communicated to plan participants) with In re J.P. Morgan
Cash Balance Litig., 2007 U.S. Dist. LEXIS 31964, at **8-11 (S.D.N.Y. Apr. 30, 2007) (deciding
that the fiduciary exception did not apply to drafts of plan amendments and notices concerning
the amendments, noting as “significant” that the plan sponsor paid the attorneys).

42 / JOURNAL OF PENSION PLANNING & COMPLIANCE
102. 178 F.3d 1058, 23 E.B. Cases (BNA) 1081 (9th Cir. 1999).
103. Id. at 1062 (quoting from lawyer’s memo).
104. The Mett court found In re Grand Jury Proceedings (United States v. Doe), 162 F.3d 554, 22
E.B. Cases (BNA) 2261 (9th Cir. 1998) (discussed supra “Cases Where Good Cause Was Not
Required”) distinguishable, because the defendants in In re Grand Jury Proceedings had conceded
that the advice related to plan administration.
105. Fortier v. Principal Life Insurance Co., 2008 U.S. Dist. LEXIS 43108, 2008 WL 2323918, at
**1-2 (E.D.N.C. June 2, 2008) (finding the fiduciary exception inapplicable where the communications
related to legal advice that the insurance company sought after it denied the
plaintiff’s claim and the plaintiff threatened litigation, such that the advice of counsel related
to the insurer’s own protection against the plan participant); Black v. Pitney Bowes, 2006 U.S.
Dist. LEXIS 92263, at *13 (S.D.N.Y. Dec. 21, 2006) (applying a fact-intensive analysis and
ruling that only communications relating to pending litigation were privileged); Halbach v.
Great-West Life & Annuity Ins. Co., 2006 U.S. Dist. LEXIS 84591, at *16 (E.D. Mo. Nov. 21,
2006) (concluding that the personal liability exception to the attorney-client privilege applied
because the plan sponsor was protecting itself from possible personal liability arising from
potentially unlawful action when it sought advice regarding changes to the plan); Fischel v.
Equitable Life Assurance, 191 F.R.D. 606, 609–610 (N.D. Cal. 2000) (ordering fiduciaries to
produce documents reflecting comments by inside counsel that were “focused on word smithing
and editing the language disclosing plan changes for the benefit of the beneficiaries” and
documents containing counsel’s comments about the structure and design of the plan, including
the plan’s compliance with the Internal Revenue Code).
106. For a criticism of the predecisional/postdecisional approach to determining whether communications
are subject to the fiduciary exception, see Tatum v. R.J. Reynolds Tobacco Co., 247
F.R.D. 488, 498 (M.D.N.C. 2008): “[T]he predecisional/post-decisional distinction is not an
analytical shortcut. The time period in which the communications occurred may be informative,
but it is not dispositive. The key issue remains whether the communication related to plan
administration or generalized concern for liability, as opposed to concern for the fiduciaries’
liability as a result of a specific threat of litigation. Regardless of when the communication
occurred relative to the processing of the administrative claim, this court finds it appropriate
to examine both the context and content of each communication to determine whether it is
subject to the fiduciary exception.”
107. Geissal v. Moore Med. Corp., 192 F.R.D. 620, 624–625, 24 E.B. Cases (BNA) 2805 (E.D. Mo.
2000).
108. Coffman v. Metropolitan Life Ins. Co., 204 F.R.D. 296, 300, 27 E.B. Cases (BNA) 1188 (S.D.
W. Va. 2001). See also Society of Professional Eng’g Employees in Aerospace, IFPTE Local
2001, AFL-CIO v. Boeing Co., 2009 U.S. Dist. LEXIS 102345, 2009 WL 371159 (D. Kan.
Nov. 3, 2009) (declining to apply fiduciary exception where “the plan fiduciary retained counsel
for legal advice because plaintiffs had already commenced litigation and alleged that the
Committee had breached its fiduciary duties to the beneficiaries”).
109. Coffman, 204 F.R.D. at 299.
110. 203 F.R.D. 615 (D. Kan. 2001).

ATTORNEY-CLIENT PRIVILEGE ISSUES IN EMPLOYEE BENEFITS PRACTICE / 43
111. Id. at 620. See also Redd v. Brotherhood of Maintenance of Way Employees Div. of the Int’l
Bhd. of Teamsters, 2009 U.S. Dist. LEXIS 46288, 2009 WL 1543325, 47 E.B. Cases (BNA) 1865
(E.D. Mich. June 2, 2009) (ordering production of documents “created in the ‘predecisional’
phrase of the plan administrator’s decision to recalculate and reduce Plaintiffs’ pension benefits”
and rejecting claims that (i) the threat of litigation, or (ii) certain plaintiffs’ involvement with
plan administration eliminated the fiduciary exception); Asuncion v. Met. Life., 493 F. Supp. 2d
716, 721–722 (S.D.N.Y. 2007) (magistrate’s order) (ruling that fiduciary exception would apply
to communications between an insurance company and the company’s counsel about terminating
disability benefits prior to completing the factual investigation of the claim).
112. Society of Professional Engineering Employees in Aerospace, IFPTE Local 2001, AFL-CIO v.
Boeing Co. , 2009 U.S. Dist. LEXIS 102345, 2009 WL 3711599 (D. Kan. Nov. 3, 2009).
113. 2009 WL 3711599, at *4 (citation omitted).
114. Id .
115. 203 F.R.D. 614 (D. Kan. 2001).
116. 2009 WL 3711599, at *4 n.10.
117. Id .
118. Wildbur v. ARCO Chem. Co., 974 F.2d 631, 645, 16 E.B. Cases 1235 (5th Cir. 1992).
119. 974 F.2d at 645–646. The Fifth Circuit, on appeal, expressed no opinion as to whether the
magistrate correctly held that the attorney-client privilege barred disclosure after the parties’
interests diverged, but affirmed this aspect of the decision on other grounds.
120. Martin v. Valley Nat’l Bank, 140 F.R.D. 291, 324–325 (S.D.N.Y. 1991).
121. See, e.g. , Geissal v. Moore Med. Corp., 192 F.R.D. 620, 624-625 (E.D. Mo. 2000) (finding that
postdecisional communications between counsel and the plan administrator were protected
from disclosure notwithstanding the fiduciary exception to the attorney-client privilege, and
simultaneously relying on the reasoning in Mett and the fact that the interests of the administrator
and the plan participants had “diverged” [192 F.R.D. at 624–625]. Similarly, Tatum
v. R.J. Reynolds Tobacco Co., 247 F.R.D. 488, 498 (M.D.N.C. 2008), ruled that the identity
of interests on which the fiduciary exception rests “vanishes where the fiduciary is faced with
a threat of litigation and seeks legal advice for its own protection against plan beneficiaries,
regardless of whether that threat of litigation occurs before, during, or after the administrative
claim process.”
122. Redd v. Brotherhood of Maintenance of Way Employees Div. of Int’l Brotherhood of
Teamsters 2009 U.S. Dist. LEXIS 46288, 2009 WL 1543325, 47 E.B. Cases (BNA) 1865 (E.D.
Mich. June 2, 2009).
123. 2009 WL 1543325, at *2.
124. Id. at *3. See also Asuncion v. Metropolitan Life Insurance Co., 493 F. Supp. 2d 716, 722
(S.D.N.Y. 2007) (court held that communication not privileged even though motivated by
employer’s concern that matter would likely end up in litigation, considering that plaintiff had
previously sued for benefits and would do so again if benefits denied: “[T]he mere fact that an
adversarial relationship existed as a general matter as the result of the prior suit does not mean
that Met Life was no longer required to act as a fiduciary with respect to any subsequentlypresented
benefits claim.” (internal quotation marks and citation omitted)).

44 / JOURNAL OF PENSION PLANNING & COMPLIANCE
125. Wachtel v. Health Net, Inc., 482 F.3d 225, 234, 40 E.B. Cases (BNA) 1545 (3d Cir. 2007) (utilizing
a four-factor test to distinguish an insurer fiduciary from other ERISA fiduciaries).
126. Liberty Mutual Insurance Co. v. Tedford, 2009 WL 2425841, at *7 (N.D. Miss. Aug. 6, 2009)
(holding the fiduciary exception inapplicable to communications “between an insurance
company and outside counsel retained to file a declaratory judgment action to determine coverage
issues because the initial contact with the firm was made by the supervising agent for the
insurance company” and “[a]lthough case law may support an exception to the attorney/client
privilege in other fiduciary/beneficiary relationships, the application of [] that policy to an
insurer/insured relationship in questions of whether a policy covers a specific scenario would
severely limit the insurer’s ability to seek legal counsel regarding its duties or applicability of
coverage under various policies”); Fortier v. Principal Life Insurance Co., 2008 U.S. Dist.
LEXIS 43108, 2008 WL 2323918 (E.D.N.C. June 2, 2008) (holding that the fiduciary exception
did not apply to an insurance company’s communications with its legal department relating to
denial of a claim for long-term disability benefits).
127. Smith v. Jefferson Pilot Financial Ins. Co., 245 F.R.D. 45, 47–49, 2007 U.S. Dist. LEXIS 69016,
at *11-26 (D. Mass. Aug. 2, 2007) (rejecting the Third Circuit’s analysis).
128. Stephan v. Thomas Weisel Partners, LLC, 2009 U.S. Dist. LEXIS 75585, 2009 WL 2511973
(N.D. Cal. Aug. 14, 2009).

Multiemployer Pension
Plan Withdrawal Liability
RICHARD A. NAEGELE AND KELLY A. MEANS
Richard A. Naegele, J.D., M.A., is an attorney and shareholder at
Wickens, Herzer, Panza, Cook & Batista Co. in Avon, OH. He is a
Fellow of the American College of Employee Benefits Counsel. His
e-mail address is RNaegele@wickenslaw.com.
Kelly A. Means, J.D., is an associate attorney at Wickens, Herzer,
Panza, Cook & Batista Co. in Avon, Ohio. Her e-mail address is
KMeans@wickenslaw.com.
I. OVERVIEW OF WITHDRAWAL LIABILITY
A. The Multiemployer Pension Plan Amendment Act of 1980
(“MPPAA”) amended the Employee Retirement Income Security
Act of 1974 (“ERISA”), to impose liability for a share of the
unfunded vested benefits of multiemployer defined benefit
pension plans on employers that withdraw from such plans.
MPPAA was amended by the Pension Protection Act of 2006
(“PPA”).
B. Under MPPAA when an employer withdraws from a multiemployer
defined benefit pension plan which has unfunded vested
benefits, the employer is generally liable to the pension plan for a
share of the unfunded vested benefits in an amount determined
under MPPAA.
C. Questions to ask in a merger or acquisition:
1. Is there a collective bargaining agreement?
2. Does the employer contribute to a pension plan on behalf of
union employees?
3. Is the pension plan a multiemployer plan or a single employer
plan?
45

46 / JOURNAL OF PENSION PLANNING & COMPLIANCE
4. If it is a multiemployer plan, is it a defined benefit plan or a
defined contribution plan?
5. If the plan is a multiemployer defined benefit plan, is it
underfunded and is there a withdrawal liability?
6. If there is a withdrawal liability:
a. A sale of assets may trigger withdrawal liability for the
seller.
b. A purchase of stock may result in an assumption of the
potential withdrawal liability as a contingent liability of
the buyer.
II.
DETERMINATION OF WHETHER
A WITHDRAWAL HAS OCCURRED
A. Complete Withdrawal. ERISA § 4203(a).
A complete withdrawal from a multiemployer plan occurs when
an employer:
1. Permanently ceases to have an obligation to contribute under
the plan; or
2. Permanently ceases all covered operations under the plan.
The date of a complete withdrawal is the date of the cessation
of the obligation to contribute or the cessation of covered
operations.
B. Partial Withdrawal. ERISA § 4205.
A partial withdrawal from a multiemployer plan occurs on the
last day of a plan year in which there is either (1) a 70% decline in
contribution base units; or (2) a partial cessation of the employer’s
contribution obligation.
1. Seventy percent contribution decline.
A 70% decline in contribution base units occurs if, during
the plan year and each of the preceding two plan years

MULTIEMPLOYER PENSION PLAN WITHDRAWAL LIABILITY / 47
(the three-year testing period), the number of contribution
base units (the units upon which contributions to the plan
are based, such as “hours worked” or “weeks worked”) for
which the employer was required to make plan contributions
did not exceed 30% of the number of contribution base units
for the “high base year.” The “high base year” is determined
by averaging the employer’s contribution base units for the
two plan years for which such units were the highest within
the five plan years preceding the three year testing period.
2. Partial cessation of an employer’s contribution obligation.
A partial cessation occurs in either of the following
situations:
a. A “bargaining unit take-out.”
If an employer that is required to contribute to a plan
under two or more collective bargaining agreements
ceases to have an obligation to contribute under at least
one but not all of the agreements, but continues work in
the jurisdiction of the agreement of the type for which
contributions were previously required or transfers such
work to another location.
b. A “facility take-out.”
If an employer permanently ceases to have an obligation
to contribute under the plan for work performed at
one or more but fewer than all of its facilities covered
under the plan, but continues to perform work at the
facility of the type for which the obligation to contribute
ceases.
C. Special Rules for Construction Industry. ERISA § 4203(b).
The construction industry is afforded a partial exemption from
the employer withdrawal liability rules. Generally, a construction
industry employer will be permitted to withdraw from a plan without
incurring any liability, unless it continues to perform work in
the covered area of the sort performed by the covered employees.
The special rules apply to an employer contributing to a plan
only if substantially all of the employees for whom the employer
has an obligation to contribute perform work in the building and

48 / JOURNAL OF PENSION PLANNING & COMPLIANCE
construction industry. In addition, the plan must (a) cover primarily
employees in the building and construction industry; or (b) be
amended to provide that the rules apply to employers with an
obligation to contribute for work performed in the building and
construction industry.
1. Complete withdrawal.
For plans and employers that qualify for the construction
industry exception, a complete withdrawal occurs only if
the employer ceases to have an obligation to contribute to
the plan, and, in addition, either (a) continues to perform
the same or similar work (i.e., work of the type for which
contributions were previously required) in the jurisdiction
of the collective bargaining agreement; or (b) resumes such
work within five years after the cessation of the obligation to
contribute, and does not renew the obligation at the time of
the resumption.
2. Partial withdrawal.
Under the construction industry exception, a partial withdrawal
occurs only if the employer’s obligation to contribute
under the plan is continued for no more than an insubstantial
portion of the potentially covered work which the employer
performs in the craft and area jurisdiction of the collective
bargaining agreement. According to the Joint Committee
Explanation, a partial withdrawal occurs only when an
employer has substantially shifted its work mix in the jurisdiction
so that only an insubstantial part of such work in the
jurisdiction is covered.
D. Special Rules for Trucking Industry. ERISA § 4203(d).
A limited exemption applies to plans in which substantially all
the contributions are made by employers in the long and shorthaul
trucking industry, the household goods moving industry, or
the public warehousing industry. In Continental Can Company,
Inc. v. Chicago Truck Drivers, Helpers and Warehouse Workers
Union (Independent) Pension Fund, 916 F.2d 1154 (7th Cir.
1990), the Seventh Circuit Court of Appeals ruled that the term
“substantially all” for purposes of the trucking industry exception
means that at least 85% of the contributions to the plan are

MULTIEMPLOYER PENSION PLAN WITHDRAWAL LIABILITY / 49
made by employers that are primarily engaged in the specified
industries.
An employer primarily engaged in such work that ceases to perform
work within the geographical area covered by the plan will be
considered to have completely withdrawn from the plan only if the
employer permanently ceases to have an obligation to contribute
under the plan or permanently ceases all covered operations under
the plan, and either:
1. The PBGC determines that the cessation has caused substantial
damage to the plan’s contribution base, or
2. The employer fails to post a bond or put an amount in escrow
equal to 50% of its potential withdrawal liability.
If, after the employer posts the bond or escrow, the PBGC determines
that the employer’s cessation has substantially damaged
the plan, the entire bond or escrow is to be paid to the plan. In
such case, the employer will be considered to have withdrawn
from the plan on the date that the cessation occurred and the
employer will be liable for the remainder of the withdrawal
liability in accordance with the usual withdrawal liability
rules. In determining whether substantial damage has been
done to the plan, the PBGC will consider the employer’s cessation
in the aggregate with any cessations by other employers.
The time period for the PBGC to make its determination
cannot exceed 60 months after the date on which the obligation
to contribute for covered operations ceased. After that
time, the bond will be cancelled or the escrow returned, and
the employer will have no further liability. The PBGC has
authority to order the bond cancelled or the escrow returned
at any time within the 60-month period upon a determination
that the employer’s cessation of contributions (considered
together with cessations of other employers) has not
substantially damaged the plan.
It is important to note that the trucking industry exception
does not automatically apply to every plan covering employees
in the trucking industry. For example, the Teamsters
Central States, Southeast and Southwest Areas Pension
Fund is not considered to be a trucking industry plan to

50 / JOURNAL OF PENSION PLANNING & COMPLIANCE
which the special rules apply. Therefore, an employer must
check with the particular pension fund under which its
trucking or warehouse employees are covered to determine
whether the trucking industry rules are applicable to such
pension fund.
E. Definition of an “Employer” for Withdrawal Liability Purposes.
ERISA § 4001(b)(1).
For purposes of Title IV of ERISA, all employees of trades or
businesses (whether or not incorporated) which are under common
control shall be treated as employed by a single employer and all
such commonly controlled trades and businesses are treated as a
single employer. In Opinion Letter No. 82-13 issued by the Pension
Benefit Guarantee Corporation (PBGC), the PBGC stated that the
term “employer” as defined in § 4001(b) applies for all purposes
under Title IV of ERISA, including a determination by a multiemployer
pension plan of whether a complete or partial withdrawal
has occurred. The PBGC also stated that all members of a controlled
group of corporations are responsible for the withdrawal
liability attributable to one of the controlled group members.
The regulations issued under § 414(c) of the Internal Revenue
Code define a controlled group of corporations for all purposes
under Title IV of ERISA, including multiemployer pension plan
withdrawal liability. A brother-sister controlled group is defined
as two or more organizations conducting trades or businesses if
(1) the same five or fewer persons own, singly or in combination,
a controlling interest (defined as at least 80% of the voting power
or total value of stock) of each organization; and (2) taking into
account the ownership of each such person only to the extent such
ownership is identical with respect to each such organization, such
persons are in effective control (defined as more than 50% of the
voting power or value of the stock) of each organization. IRC
§§ 414(b) and (c), 1563(a).
F. Mass Withdrawal Liability.
1. A multiemployer pension plan can terminate due to the
“mass withdrawal” of all contributing employers. 29 U.S.C.
§ 1341a(a)(2). A “mass withdrawal” means:
a. The withdrawal of every employer from the plan,

MULTIEMPLOYER PENSION PLAN WITHDRAWAL LIABILITY / 51
b. The cessation of the obligation of all employers to contribute
under the plan, or
c. The withdrawal of substantially all employers pursuant
to an agreement or arrangement to withdraw. 29 C.F.R.
§ 4001.2; 29 U.S.C. § 1341a(a)(2).
2. A plan which terminates due to a mass withdrawal is subject
to a notice and substantive obligations, including possible
benefit reduction or suspension. 29 U.S.C. § 1441; 29 C.F.R.
§§ 4041A and 4268.
3. Employers involved in a mass withdrawal not only have to
pay the “initial” withdrawal liability as outlined above, but
also must pay the amounts which would otherwise be excluded
under the de minimis and 20-year limitation provisions.
29 U.S.C. §§ 1389(c), 1399(c)(1)(D); 29 C.F.R. §§ 4219.11,
4219.12.
4. Further, employers that withdraw within three years of
a mass withdrawal are presumed to have withdrawn pursuant
to an agreement or arrangement to withdraw and
may be liable for reallocation liability. This presumption
may be rebutted by a preponderance of the evidence. 29
U.S.C. §§ 1389(d), 1399(c)(1)(D); 29 C.F.R. § 4219.12(g).
Reallocation liability is an amount of UVBs which are
not otherwise collected or collectible by the pension plan,
such as amounts uncollectible due to the bankruptcy of
employers.
5. From the mass withdrawal or termination of the plan due
to a mass withdrawal, a sequence of deadlines for computing
and giving notice of liability occur under the regulations
(29 C.F.R. § 4219). This can be a lengthy period of
time, extending over one year after the mass withdrawal
occurs.
6. Any additional amounts owed due to a mass withdrawal are
either added into the employer’s withdrawal liability payment
schedule or, if the employer has no withdrawal liability
payments, a new payment schedule is established in the same
manner as an initial withdrawal liability payment schedule.
29 C.F.R. § 4219.16(f).

52 / JOURNAL OF PENSION PLANNING & COMPLIANCE
7. The review and arbitration procedures for withdrawal liability
(discussed below) also apply to mass withdrawal liability
determinations. 29 C.F.R. § 4219.16(g). If the plan sponsor
later determines that a mass withdrawal has not occurred,
then withdrawal liability payments and interest must be
refunded to employers. 29 C.F.R. § 4219.16(i).
III.
CALCULATION OF WITHDRAWAL LIABILITY
A. Methods for Computing Withdrawal Liability. ERISA § 4211.
The Multiemployer Pension Plan Amendments Act of 1980 established
a “presumptive method” for computing and allocating withdrawal
liability. The Act also provides several alternative methods
upon which plans may compute withdrawal liability. However,
the presumptive method will generally apply unless a plan specifically
adopts one of the alternative methods. Multiemployer plans
which primarily cover employees in the building and construction
industry were required to use the presumptive method prior to
2007.
B. Presumptive Method. ERISA § 4211(b).
The presumptive method for computing withdrawal liability
distinguishes between employers that contributed to a plan for a
plan year ending prior to September 26, 1980, and employers that
have only contributed for plan years ending on or after such date.
Withdrawing employers that contributed to a multiemployer
plan subsequent to September 25, 1980, must fund a share of
the increase in the plan’s “unfunded vested benefits” (the amount
by which the plan’s vested [nonforfeitable] benefits exceed the
plan’s assets) which occurred during the period for which the
employer was required to contribute to the plan. Employers that
were required to contribute to a multiemployer plan for plan
years ending prior to September 26, 1980, and that subsequently
withdraw from the plan, must also fund a share of the plan’s
unfunded vested benefits for the years prior to September 26,
1980, during which such employers were required to contribute
to the plan.
Withdrawal liability under the presumptive method is a combination
of three factors:

MULTIEMPLOYER PENSION PLAN WITHDRAWAL LIABILITY / 53
1. The employer’s proportional share (unamortized amount) of
the change in unfunded vested benefits for plan years ending
after September 25, 1980, during which the employer was
obligated to contribute under the plan; and
2. The employer’s proportional share (if any) of the unamortized
amount of the unfunded vested benefits for the plan
years ending prior to September 26, 1980 (applicable only to
employers that were obligated to contribute to the plan for
plan years ending prior to September 26, 1980); and
3. The employer’s proportional share of the plan’s reallocated
unfunded vested benefits (if any).
The “reallocated unfunded vested benefits” for a given plan
year equal the sum of the amounts which the plan sponsor
determines during such year (1) to be uncollectible from an
employer due to bankruptcy or similar proceedings; (2) will
not be assessed because of the de minimis rules (discussed
below), the 20-year payment cap (discussed below), or certain
dollar limitations applicable to insolvent employers,
noncorporate employers, and asset sales to unrelated parties;
and (3) to be uncollectible or unassessable for other reasons
which are not inconsistent with regulations prescribed by the
PBGC.
An individual employer’s percentage share of the plan’s total
unfunded vested benefits is basically equivalent to the ratio
between the employer’s contributions to the plan and the
total contributions made to the plan by all employers for the
same period. For example, an employer that contributes one
percent of the total contributions made to the plan will have
a withdrawal liability equal to approximately one percent of
the plan’s unfunded vested benefits.
C. Reduction Under the de Minimis Rule. ERISA § 4209.
An employer’s withdrawal liability will be reduced by the lesser
of (1) $50,000; or (2) three-fourths of one percent of the plan’s
unfunded vested benefits determined as of the end of the most
recent plan year ending before the date of withdrawal. The amount
offset under the de minimis rule is reduced, dollar-for-dollar, as

54 / JOURNAL OF PENSION PLANNING & COMPLIANCE
an employer’s withdrawal liability, determined without regard to
the de minimis rule, exceeds $100,000. Therefore, the exemption
under the de minimis rule is only applicable when an employer’s
withdrawal liability is less than $150,000.
Examples (assuming that three-fourths of one percent of the plan’s
unfunded vested benefits exceed $50,000):
1. Withdrawal liability of $45,000 would be reduced to $0;
2. Withdrawal liability of $75,000 would be reduced by $50,000
and final liability would be $25,000;
3. Withdrawal liability of $110,000 would be reduced by $40,000
and final liability would be $70,000; and
4. Withdrawal liability of $150,000 would not be reduced
at all.
A Plan may be amended by the plan trustees to provide for
the use of a “discretionary” de minimis rule, in lieu of the
“mandatory” de minimis rule discussed above. Under the
discretionary rule, an employer’s withdrawal liability will be
reduced by the greater of (1) the amount of the reduction
determined under the mandatory de minimis rule; or (2)
the lesser of (a) three-fourths of one percent of the plan’s
unfunded vested benefits determined as of the close of the
most recent plan year ending before the date of withdrawal;
or (b) $100,000. The amount offset under the discretionary
de minimis rule is reduced, dollar-for-dollar, as an employer’s
withdrawal liability, determined without regard to the de
minimis rule, exceeds $150,000.
If the discretionary de minimis rule is adopted by a plan,
the mandatory de minimis rule will not be applied separately
(i.e., the discretionary and mandatory rules cannot be used
together to produce a double reduction). If a plan does not
adopt the discretionary de minimis rule, the mandatory de
minimis rule will automatically apply. Several large multiemployer
plans have adopted the discretionary rule.
D. Partial Withdrawal. ERISA § 4206.

MULTIEMPLOYER PENSION PLAN WITHDRAWAL LIABILITY / 55
An employer’s withdrawal liability for a partial withdrawal is a pro
rata portion of the liability the employer would have incurred for
a complete withdrawal. The partial withdrawal adjustment reflects
the decline in the withdrawing employer’s contribution base units
and is applied to withdrawal liability after the application of the
20-year payment cap or other special limitations on the amount of
withdrawal liability.
The precise method of computing the partial withdrawal adjustment
depends on whether the partial withdrawal resulted from a
70% decline in contribution base units or from a partial cessation
of an employer’s contribution.
IV.
PAYMENT OF WITHDRAWAL LIABILITY
A. Information to Be Furnished by Employer. ERISA § 4219(a).
An employer withdrawing from a multiemployer pension plan
must, within 30 days after a written request from the plan sponsor,
furnish such information as the plan sponsor reasonably determines
to be necessary to comply with its duties in computing and
collecting withdrawal liability.
B. Notice and Collection of Withdrawal Liability by Plan Sponsor.
ERISA § 4219(b)(1).
1. As soon as practicable after an employer’s complete or
partial withdrawal from a multiemployer pension plan, the
plan sponsor must notify the employer of (1) the amount of
withdrawal liability; and (2) the payment schedule for such
liability payments. The plan sponsor must demand that withdrawal
payments be made in accordance with the payment
schedule.
2. An assessment of withdrawal liability is mandatory under
ERISA § 4201.
C. Payment Schedule Formula. ERISA § 4219(c)(1)(C).
The payment schedule under which the withdrawing employer is
required to pay its withdrawal liability is determined by the plan
sponsor pursuant to the following formula:

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Annual amount of withdrawal liability payment equals
Average annual number of contribution
base units (e.g., hours
worked or weeks worked) for
the three consecutive plan years
during the 10 consecutive plan
year period ending before the
plan year in which the withdrawal
occurs in which the number
of contribution base units
for which the employer had an
obligation to contribute under
the plan were the highest.
Highest contribution rate
(e.g., cents per hour or dollars
per week) at which the
employer had an obligation
to contribute under the plan
during the 10 plan years
ending with the plan year in
which the withdrawal occurs.
The amount determined under this formula is the level annual
payment which is to be paid over a period of years necessary to
amortize the liability, subject to the 20-year payment cap discussed
below. 1
D. Length of Payments: Twenty-Year Payment Cap. ERISA
§ 4219(c)(1)(B).
The employer is required to make level annual payments to the
pension plan for the lesser of (1) the number of years it would take
to amortize its withdrawal liability (determined under the actuarial
and interest assumptions used in the most recent actuarial valuation
of the plan); or (2) 20 years. In other words, the employer’s
liability shall be limited to the first 20 annual payments as determined
above.
The 20-year payment cap does not apply if a multiemployer pension
plan terminates due to the withdrawal of all employers from
the plan or if substantially all of the employers withdraw under an
agreement or arrangement to withdraw. In such a case, the total
unfunded vested benefits of the plan are allocated to all employers
under PBGC Regulation § 2676. 2
E. Commencement of Withdrawal Liability Payments. ERISA
§§ 4219(c)(2) and (3).
Payment of withdrawal liability must begin no later than 60 days
after the date on which the plan sponsor demands payment,

MULTIEMPLOYER PENSION PLAN WITHDRAWAL LIABILITY / 57
notwithstanding any request for review or appeal of the determination
of the amount of the liability or the payment schedule.
Payments are to be made in four equal quarterly installments
unless the plan specifies other intervals. If a payment is not made
when due, interest will accrue on the unpaid amount based on the
prevailing market rate.
The U.S. Supreme Court has held that interest on an employer’s
amortized charge for withdrawal liability begins to accrue on the
first day of the plan year following withdrawal. 3 Rejecting an argument
that interest should begin to accrue on the last day of the
plan year preceding withdrawal, the Supreme Court reasoned that
one does not pay interest on a debt until the debt arises. Under
ERISA § 4211, withdrawal liability is treated as arising on the first
day of the plan year following withdrawal since the calculation of
payments treats the “first payment” as if it were made on the first
day of the year following withdrawal.
F. Prepayment of Withdrawal Liability. ERISA § 4219(c)(4).
The employer is entitled to prepay the outstanding amount of the
unpaid annual withdrawal liability payments, plus accrued interest,
if any, in whole or in part, without penalty.
G. Default. ERISA § 4219(c)(5).
If an employer defaults in payment of its withdrawal liability, the
plan sponsor may require immediate payment of the balance of
the employer’s withdrawal liability plus any accrued interest from
the due date of the first payment which was not timely made.
Default occurs if the employer fails to make any payment of its
withdrawal liability when due and then fails to make payment
within 60 days after receiving written notice from the plan sponsor
of such failure. A plan may also adopt rules defining other
instances of default where it is indicated that there is a substantial
likelihood that an employer will be unable to pay its withdrawal
liability.
H. Deductibility of Withdrawal Liability Payments. I.R.C. § 404(g).
Any amount paid by an employer as a withdrawal liability payment
will be deductible as an employer contribution under I.R.C.
§ 404 (which considers amounts paid by an employer under Part 1

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of Subtitle E of Title IV of ERISA as a contribution) to a stock
bonus, pension, profit-sharing, or annuity plan.
I. Refund of Withdrawal Liability Overpayments. ERISA
§ 403(c)(2)(A)(ii).
Permits the return of payments made by a mistake of fact or law
to an employer from a multiemployer plan within six months after
the date the plan administrator determines that such a mistake
has occurred. ERISA § 403(c)(3) permits the return of withdrawal
liability payments determined to be overpayments within six
months after the date of such determination. The plan administrator
may make refund payments to an employer under ERISA
§§ 403(c)(2)(A)(ii) or 403(c)(3) without review or arbitration initiated
under ERISA §§ 4219 or 4221. 4
V. RESOLUTION OF DISPUTES CONCERNING
WITHDRAWAL LIABILITY
A. Request for Review of Plan Sponsor’s Determinations. ERISA
§ 4219(b)(2).
An employer may request that the plan sponsor review any specific
matter relating to the determination of the employer’s withdrawal
liability and schedule of payments within 90 days after the
employer receives the initial notice and demand for payment of its
liability. During the 90-day period, the employer may identify any
inaccuracies in the determination of the amount of the employer’s
withdrawal liability and furnish the plan sponsor with any additional
relevant information.
The plan sponsor must conduct a reasonable review of any matter
raised and notify the employer of (1) its decision; (2) the basis for
its decision; and (3) the reason for any change in the determination
of the employer’s liability or schedule of liability payments.
B. Arbitration Proceeding. ERISA § 4221.
Any dispute between an employer and the plan sponsor relating to
withdrawal liability is to be resolved through an arbitration proceeding.
Either party may initiate the arbitration proceeding within
a sixty day period following the earlier of (1) the date the plan sponsor
notifies the employer of its decision after a reasonable review

MULTIEMPLOYER PENSION PLAN WITHDRAWAL LIABILITY / 59
of any matter raised under ERISA § 4219(b)(2)(B); or (2) 120 days
after the employer requests a review of the plan sponsor’s determination
of withdrawal liability under ERISA § 4219(b)(2)(A).
The plan sponsor and the employer may jointly initiate arbitration
within a 180-day period following the date of the plan sponsor’s
initial notice of withdrawal liability and demand for payment.
For purposes of the arbitration proceeding, ERISA § 4221(a)(3)(B)
states that any determination of withdrawal liability or of liability
payments by a plan sponsor will be presumed correct unless the
party contesting the determination shows by a preponderance
of the evidence that the actuarial assumptions or methods used
in the determination were, in the aggregate, unreasonable. The
U.S. Supreme Court has affirmed (by an equally divided Court) a
decision holding that the presumption favoring the correctness of
multiemployer pension fund trustees’ withdrawal liability determinations
is unconstitutional. PBGC v. Yahn & McDonnell, Inc., 787
F.2d 128 (3d Cir. 1986), affirmed 481 U.S. 735 (1987). 5 However,
in Concrete Pipe and Products of California v. Construction
Laborers Pension Trust for Southern California, 113 S. Ct. 2264
(1993), the Supreme Court skirted this issue while referring to
ERISA § 4221(a)(3)(B) as “incoherent” and “ambiguous” and
stated that a statute should be construed to avoid serious constitutional
problems unless such construction is plainly contrary to
Congress’ intent. Thus, the Supreme Court interpreted ERISA
§ 4221(a)(3)(B) such that the presumption is construed to place the
burden on the employer to disprove the trustees’ factual determinations
by a preponderance of the evidence. The Supreme Court
further stated that MPPAA does not violate an employer’s due
process rights or its Fifth Amendment rights.
Within 30 days after the issuance of the arbitrator’s award, any
party to the arbitration proceeding may bring an action in U.S.
District Court to enforce, vacate, or modify the arbitrator’s award.
In the court proceeding, there is a rebuttable presumption that the
arbitrator’s findings of fact were correct.
C. Payments During Arbitration Period. ERISA §§ 4221(b)(1) and (d).
Pending resolution of the dispute and during arbitration, the
employer is required to pay withdrawal liability payments in
accordance with the determinations made by the plan sponsor.
Subsequent payments will be adjusted for any overpayments or

60 / JOURNAL OF PENSION PLANNING & COMPLIANCE
underpayments arising out of the arbitrator’s decision on the
determination of withdrawal liability. If the employer fails to
make timely payment in accordance with the arbitrator’s final
decision, the employer will be treated as being delinquent in making
a required plan contribution and could be liable for interest or
liquidated damages.
If no arbitration proceeding is initiated, the amounts demanded by
the plan sponsor will be due and owing on the payment schedule
issued by the plan sponsor. The plan sponsor may bring an action
in a state or federal court of competent jurisdiction for collection.
Notwithstanding the provisions cited above, several federal district
court decisions have granted temporary restraining orders barring
plan sponsors from collecting withdrawal liability payments
pending resolution of disputes concerning such liability. It should
be noted, however, that other federal court decisions have upheld
the plan sponsor’s right to receive payments pending resolution of
disputes.
D. Preservation of Rights by Employer.
It is critically important that an employer take immediate action to
preserve its rights if it receives a notice of withdrawal liability from
a multiemployer plan. If the employer fails to request a review of
the plan sponsor’s determinations ( see IV.A. above) and does not
request arbitration within the appropriate time periods ( see IV.B.
above), the employer may have waived all of its rights to challenge
the assessment of the withdrawal liability. 6
VI.
LIABILITY FOR WITHDRAWAL LIABILITY
A. Common Control.
To establish a “single employer” for purposes of determining
withdrawal liability, the entities involved must be under common
control. Common control is defined in I.R.C. § 414(c) and includes
parent-subsidiary and brother-sister organizations. Courts have
held that the businesses need not be economically related to satisfy
the common control test. Thus, the sole owners of corporations
that were also sole proprietors of real estate activities, 7 leasing
and consulting services, 8 or real estate leasing activities 9 have been

MULTIEMPLOYER PENSION PLAN WITHDRAWAL LIABILITY / 61
found to satisfy the common control test and the sole proprietors
have been held liable for the withdrawal liability of the commonly
controlled corporations.
B. Personal Liability.
Personal liability of shareholders, officers, and directors for pension
liabilities may be established by courts in cases where the corporate
veil can be pierced. Whether a corporate veil may be pierced
is an issue of state law.
In Scarbrough v. Perez, 870 F.2d 1079 (6th Cir. 1989), the Sixth
Circuit held that the owner-operator of a company was not
liable for withdrawal liability payments since ERISA does not
provide for personal liability. The Court explained that personal
liability would discourage controlling shareholders and officers
from directing their corporations to contribute to multiemployer
pension plans. Moreover, the Court noted that “when Congress
wants to disregard the fact of incorporation, it knows how to
say so.” 10
In Trustees of Asbestos Workers’ Local Union No. 25 Insurance
Trust Fund, v. Metro Insulators, Inc., 902 F.2d 1569 (6th Cir.
1990), the Trustees sued Metro Insulators, Inc. (“Metro”) for
unpaid fringe benefit contributions owed to the Trust fund. The
Trustees alleged that Metro’s sole shareholder, officer, and director
was also liable for the unpaid contributions. The Sixth Circuit
noted that, although the sole shareholder was the legal owner
of Metro, he was not statutorily defined 11 as an “ employer,”
responsible for making the contributions to the benefit plan.
Thus, where a court is without justification for piercing the
veil separating a corporate employer from its owner-executive,
the owner-executive should not be personally liable for the
corporation’s delinquent contributions. (Citing International
Brotherhood of Painters v. George A. Kracager, Inc., 856 F.2d
1546, 1550 (D.C. Cir. 1988) which concluded that Congress did
not intend to impose personal liability on a shareholder or high
ranking officer of a corporation for ERISA contributions owed
by the corporation.)
However, in Laborers’ Pension Trust Fund v. Sidney Weinberger
Homes, Inc., 872 F.2d 702 (6th Cir. 1988), the Sixth Circuit held
that the corporate veil of a dissolved corporate employer could

62 / JOURNAL OF PENSION PLANNING & COMPLIANCE
be pierced where the corporate form was not followed and the
shareholder was held liable under ERISA for the corporation’s
failure to properly fund employee benefit packages.
Similarly, in Sasso v. Cervoni, 985 F.2d 49 (2d Cir. 1993), the Court
considered the circumstances under which a corporate officer may
be personally liable for pension contributions owed by a corporation.
The defendant was the sole officer, director, and shareholder
of a bankrupt corporation. The Second Circuit stated that there
may be special circumstances which could warrant the imposition
of personal liability for a corporation’s ERISA obligations. For
example, an individual corporate officer may be liable for ERISA
obligations upon evidence that the officer acted in concert with
fiduciaries in breaching fiduciary obligations, intermingled assets
of the corporation with personal assets or assets of related corporations
and used corporate assets for personal benefit instead of
meeting ERISA obligations. Further, a corporate officer may be
liable for the ERISA obligations of his corporation where he has
been convicted of engaging in a criminal conspiracy to defraud the
funds of owed contributions.
Finally, it has been held that sole proprietorships may be considered
“employers” under the common control rules of IRC
§ 414(c) for purposes of determining withdrawal liability, and,
therefore, making the sole proprietor himself personally liable
for the outstanding withdrawal liability. For example, in Board
of Trustees v. Lafrenz, 837 F.2d 892 (CA9 Wash. 1988), a suit
was brought by the trustees of a multiemployer pension plan
to collect outstanding withdrawal liability from the owners of
a truck leasing company. The court held that for purposes of
determining withdrawal liability, a husband and wife could be
considered employers based on their status as the sole proprietors
of an unincorporated trade or business under common control.
Because sole proprietors are not shielded from personal liability,
the husband and wife were held personally liable for purposes of
assessing withdrawal liability.
C. Voluntary Assumption of Withdrawal Liability by Purchaser of
Assets. ERISA § 4204.
1. An employer selling assets to an unrelated third party purchaser
is relieved of primary withdrawal liability if certain
conditions are satisfied.

MULTIEMPLOYER PENSION PLAN WITHDRAWAL LIABILITY / 63
a. The purchaser assumes substantially the same contribution
obligation that the seller had prior to the sale;
b. The purchaser posts a bond for five years equal to the
greater of:
i. The average annual contribution required to be
made by the seller for the three plan years prior to
the plan year in which the sale of assets occurs; or
ii.
The annual contribution that the seller was required
to make for the last plan year prior to the sale of
assets.
c. The contract of sale provides that the seller is secondarily
liable if the purchaser completely or partially withdraws
during the five-year period following the sale and
the purchaser fails to pay its withdrawal liability.
2. If the purchaser withdraws after the sale, the determination
of the purchaser’s liability takes into account the seller’s
required contribution for the year of the sale and the four
preceding plan years. ERISA § 4204(b)(1).
3. If the seller distributes all or substantially all of its assets or
liquidates before the expiration of the five-year period, the
seller must post a bond or establish an escrow account equal
to the present value of the withdrawal liability that the seller
would have had but for the application of ERISA § 4204.
ERISA § 4204(a)(3).
D. Potential Liability of Purchaser of Assets.
A purchaser of the assets of an employer which has outstanding
withdrawal liability payments may be held liable for such payments
as a successor if (1) the purchaser had notice of the claim before the
acquisition; and (2) there was “substantial continuity in the operation
of the business before and after the sale.” 12 In Upholsterers’
International Union Pension Fund v. Artistic Furniture of Pontiac,
920 F.2d 1323 (7th Cir. 1990), the Seventh Circuit held that a
corporate entity that made an arm’s length purchase of the assets
of a company was a “successor employer” under ERISA and
responsible for the predecessor’s delinquent contributions. 13

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E. Employer Sale of Assets Limitation. 29 U.S.C. § 1405(a).
1. Withdrawal liability of employers that sell all or substantially
all of their operating assets is limited by
29 U.S.C. § 1405(a) (ERISA § 4225(a)).
2. In the case of a bona fide sale of all or substantially all of
the employer’s assets in an arm’s-length transaction to an
unrelated party (within the meaning of 29 U.S.C. § 1384(d)),
a graduated schedule limits the employer’s liability to 30% of
the liquidation or dissolution value of the employer if such
value is $5,000,000 or less up to a maximum of 80% of such
value if the value exceeds $25,000,000.
F. Employer Insolvency Limitation.
Unfunded vested benefits allocable to insolvent employer undergoing
liquidation or dissolution. 29 U.S.C. § 1405(b).
1. Insolvency of employer; liquidation or dissolution of
employer.
a. An employer is insolvent if the liabilities of the employer,
including withdrawal liability under the plan (determined
without regard to § 1405(b)), exceed the assets of
the employer (determined as of the commencement of
the liquidation or dissolution), and
b. The liquidation or dissolution value of the employer
shall be determined without regard to such withdrawal
liability.
2. In the case of an insolvent employer undergoing liquidation
or dissolution, the unfunded vested benefits allocable to that
employer shall not exceed an amount equal to the sum of:
a. 50% of the unfunded vested benefits allocable to the
employer (determined without regard to this section),
and
b. that portion of 50% of the unfunded vested benefits allocable
to the employer (as determined under paragraph
a.) which does not exceed the liquidation or dissolution
value of the employer determined:

MULTIEMPLOYER PENSION PLAN WITHDRAWAL LIABILITY / 65
i. as of the commencement of liquidation or dissolution,
and
ii.
after reducing the liquidation or dissolution value
of the employer by the amount determined under
paragraph a.
G. Statute of Limitations.
1. ERISA § 4301(f)(1) provides that a multiemployer pension
plan must file a MPPAA action within six years after the date
on which the cause of action arose.
2. The United States Supreme Court held in Bay Area Laundry &
Dry Cleaning Pension Trust Fund v. Ferber Corp. of Cal.,
Inc., 522 U.S. 192, 194, (1997), that a cause of action for
withdrawal liability arises under the MPPAA each time an
employer fails to make a payment as scheduled by the plan
trustees, and the trustees have no obligation to accelerate the
debt when an employer defaults. However, where the trustees
elect to accelerate the liability by demanding payment in full
following an employer’s default, the six-year period beings to
run when the liability is accelerated.
3. In Board of Trustees of Trucking Employees of North
Jersey Welfare Fund, Inc.—Pension Fund v. Kero Leasing
Corporation, 2004 WL1666445 (3d Cir. 2004) the U.S. Court
of Appeals for the Third Circuit held that a multiemployer
pension plan’s suit for recovery of withdrawal liability from an
individual as a participating employer was time-barred since
the complaint was filed seven years after the cause of action
accrued, one year beyond the statute of limitations provided
by the MPPAA. The Third Circuit refused to recharacterize the
action as one enforcing a preexisting default judgment against
the individual who was not part of the original suit.
VII. THE PENSION PROTECTION ACT OF 2006
(“PPA”): CHANGES TO MULTIEMPLOYER
PENSION PLANS
A. PPA Modified the Funding Provisions of ERISA for Pension Plans.
PPA modified the funding provisions of ERISA for pension plans,
including provisions to shore up ailing defined benefit pension

66 / JOURNAL OF PENSION PLANNING & COMPLIANCE
plans. The additional/corrective funding provisions are effective
through 2014.
1. New funding rules begin the first plan year beginning after
2007, with a phased transition from 90% funding to 100%
funding by 2011.
2. A pension fund can obtain an automatic five-year amortization
extension, plus five additional years at the discretion of
the IRS, for unfunded past service liability, investment loss, or
experience loss. See also Rev. Proc. 2010-52, which describes
the procedure by which the plan sponsor of a multiemployer
pension plan may request and obtain approval of an extension
of an amortization period in accordance with IRC § 431(d).
3. PPA creates three status groups for funds: funds which meet
the funding standards; “endangered” or “seriously endangered”
funds; and, “critical” funds. The fund’s actuary must
certify the fund’s status within 90 days of the start of each
plan year.
4. Endangered Status. A fund is in endangered status if it either:
(a) has a funding percentage of 80% or less or (b) faces a
funding deficiency within the next six years. A fund is in
seriously endangered status if it satisfies both conditions.
Effects:
a. The fund must adopt a funding improvement plan to
increase its funding over 10 years (15 if seriously endangered).
b. The fund must provide the bargaining parties with two
schedules to pick from for the next CBA:
i
ii.
One to maintain the current contributions but
reduce benefits (the default schedule).
One to maintain benefits and increase contributions.
iii. If the parties don’t select a schedule within 180
days after the contract expires (or upon impasse)
the fund must implement the default schedule.

MULTIEMPLOYER PENSION PLAN WITHDRAWAL LIABILITY / 67
c. Generally, there can be no plan changes or benefit
increases that increase the pension fund’s benefit
obligations.
d. The fund cannot accept a CBA or participation agreement
that provides for:
i. a reduction in the level of contributions for any
participants;
ii.
iii.
a suspension of contributions with respect to any
period of service; or
any new direct or indirect exclusion of younger or
newly hired employees from plan participation.
e. Fines or excise taxes can be assessed against trustees that
don’t comply with the funding improvement plan and
employers that don’t make the required contributions
under a default schedule.
5. Critical Status. A funding percentage of 65% or less or projected
to have a funding deficiency or cash-flow crisis within
three to six years. The effects are the same as being endangered,
plus:
a. Fund must adopt a “rehabilitation” plan to emerge from
critical status in 10 years.
b. Within 30 days of receiving notice from the fund, the
employer must pay a 5% surcharge on contributions
(10% after the initial year) until the effective date of a
CBA in which the parties adopt one of the fund’s contribution
schedules.
c. Prospective benefit reductions are permitted for “adjustable
benefits,” such as full early retirement, postretirement
death benefits, disability benefits not in pay
status, or 60-month guarantees.
d. Future benefit accrual rates can be reduced, but not to
less than one percent of contributions.

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6. An employer can file suit to compel a plan in endangered
or critical status to adopt, update, or comply with a funding
improvement or rehabilitee plan.
B. Withdrawal Liability Changes.
1. Partial withdrawal for contracting out work. If an employer
permanently ceases to have an obligation to contribute under
one or more of its collective bargaining agreement, but not
all of its CBAs, under which the employer is obligated to
contribute, but the employer transfers such work covered by
the CBA to an entity or entities owned or controlled by the
employer, a partial withdrawal occurs.
2. Building and construction industry pension plans can adopt
the six-year free look provision and can use methods of
calculating withdrawal liability other than the presumptive
method (effective January 1, 2007).
3. Surcharges are disregarded in determining an employer’s
withdrawal liability (except for purposes of determining the
unfunded vested benefits attributable to an employer under
the direct attribution method of calculation).
4. Benefit reductions are disregarded in computing an employer’s
withdrawal liability.

MULTIEMPLOYER PENSION PLAN WITHDRAWAL LIABILITY / 69
MODEL LETTER REQUESTING AMOUNT
OF WITHDRAWAL LIABILITY
The Trustees of the ( Name of Plan )
Pension Fund
(Date)
Re: Potential Employer Withdrawal Liability for ( Name of Company )
Gentlemen:
In order to prepare the annual financial statement for ( Name of Company
), our Accountant has requested that I contact you concerning our
Company’s potential withdrawal liability with regard to the ( Name of
Plan ) Pension Fund. Therefore, pursuant to ERISA Section 4221(e),
( Name of Company ) hereby requests that the Trustees of the ( Name of
Plan ) Pension Fund make available to us general information necessary
for us to compute our withdrawal liability with respect to the Pension
Fund. Please also make an estimate of our potential withdrawal liability
with respect to the Plan. Additionally, please provide me with the fiscal
year end of the Plan and the annual date on which the level of employer
withdrawal liability changes.
Our Accountant desires to complete our report as soon as possible.
Therefore, I specifically request that you provide us with the requested
information no later than ____________________. If you are unable to
provide us with the information by such date, please contact me in order
that we may further discuss this matter.
Thank you for your prompt attention in regard to this matter.
Sincerely,

70 / JOURNAL OF PENSION PLANNING & COMPLIANCE
NOTES
1. Department of Labor Opinion No. 90-2 (April 20, 1990) states that the Trustees may calculate
the amount of the annual payment of withdrawal liability by applying the formula described
above on a contract-by-contract basis rather than using a cumulative approach. In other
words, an employer’s annual withdrawal liability payment would equal the sum of the payments
computed separately for each of the employer’s contacts.
2. See also PBGC Regulation § 2640.7 for definitions for withdrawal liability upon mass
withdrawal.
3. Milwaukee Brewery Workers’ Pension Plan v. Joseph Schlitz Brewing Company, 115 S. Ct. 981
(1995).
4. Department of Labor Opinion No. 95-24A (Sept. 8, 1995).
5. The companion case of United Retail & Wholesale Employees Teamsters Union Local
No. 115 Pension Plan, et al., v. Yahn & McDonnell, Inc., et al., No. 86-253 was decided and
cited with PBGC v. Yahn & McDonnell, Inc.
6. Trustees of Colorado Pipe Industry Pension Trust v. Howard Elec. & Mechanical Inc., 909
F.2d 1379 (10th Cir. 1990).
7. Central States, Southeast and Southwest Pension Fund v. Personnel, Inc., 974 F.2d 789 (7th
Cir. 1992).
8. Central States, Southeast and Southwest Areas Pension Fund v. Koder, 969 F.2d 451 (7th Cir. 1992).
9. Central States, Southeast and Southwest Areas Pension Fund v. Slotky, 956 F.2d 1369 (7th Cir.
1992).
10. See also Central States Southeast & Southwest Areas Pension Fund v. Johnson , 991 F.2d 387
(7th Cir. 1993). In this case, the Trustees sued an individual for multiemployer withdrawal
liability. In its decision, the court stated that:
although Congress did not preclude the possibility of individual liability under MPPAA,
it also did not design a broad scheme of attaching personal liability in all cases where
pension debts go unsatisfied. Congress did not, for example, generally authorize pension
funds to disregard the corporate form and hold shareholders directly responsible for
unfulfilled ERISA obligations.
11. ERISA § 3(5).
12. Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Pension Fund
v. Tasemkin, Inc., 59 F.3d 48, 49 (7th Cir. 1995).
13. The Seventh Circuit found the following facts to be significant:
(1) The successor employed substantially all of the predecessor’s work force and supervisory
personnel;
(2) The successor used the predecessor’s plant, machinery and equipment and manufactured
the same products;
(3) The successor completed work orders not completed by predecessor prior to
termination;
(4) The successor agreed to honor warranty claims for goods sold by predecessor;
(5) Several of the predecessor’s vice-presidents stayed in the same position under the successor’s
management.

MULTIEMPLOYER PENSION PLAN WITHDRAWAL LIABILITY / 71
Upholsterers’ International Union Pension Fund v. Artistic Furniture of Pontiac, 920 F.2d
1323, 1329 (7th Cir. 1990).
See also Central States, Southeast and Southwest Areas Pension Fund v. Hayes, 789
F. Supp. 1430 (N.D. Ill. 1992) (In addition to the factors noted above, the Court found the
successor’s use of the predecessor’s bank account and holding itself out to the public as the
predecessor for at least the first two months of operations to be indicia of successor liability.);
Stotter Division of Graduate Plastics Co., Inc. v. District 65, United Auto Workers, AFL-CIO,
991 F.2d 997 (2d Cir. 1993) (one of the facts that the Court found compelling was the crediting
by the successor of vacation benefits and sick leave to employees on the basis of their time
employed by both the predecessor and successor).