Multi-employer plans have been catching my eye lately. These plans, sometimes called “Taft-Hartley plans,” are maintained pursuant to collective bargaining agreements between unions and various employers. In Shelter Distribution, Inc. v. General Drivers, Warehousemen & Helpers Local Union No. 89, the collective bargaining agreement provided that the union would indemnify the company for any contingent liability under the Multi-employer Pension Plan Amendments Act of 1980. The Sixth Circuit rejected the union’s argument that it is a violation of public policy for a union to indemnify an employer for contingent liability in an ERISA plan. In arriving at its decision, the court referenced Pfahler v. National Latex Products Co., in which the Sixth Circuit clarified that while ERISA prohibits agreements that diminish statutory obligations of a fiduciary, it does not prohibit an indemnification agreement with a third party.

There is a world of difference between agreeing to be liable for specified contribution amounts, and agreeing to be responsible for contingent liability. The Central States, Southeast and Southwest Areas Pension Fund, which was the plan at issue here, is in the “red zone,” for critical funding status. When an employer exits a multi-employer plan such as this, the withdrawal liability that is allocated to that employer can be a surprisingly large figure.

We now have two circuits that have ruled on this indemnification issue (Third Circuit and Sixth Circuit), with both finding that an indemnification provision regarding ERISA multi-employer plan contingent liability does not violate public policy. Reneging on an indemnification agreement may have seemed like a good idea at the time, but this could have a chilling effect on multi-employer plan participation.