Withdrawal Liability Claim Against Barbados Subsidiary Revived

Central States, Southeast and Southwest Areas Pension Fund is permitted to conduct discovery regarding general personal jurisdiction over a Barbados subsidiary of a bankrupt U.S. corporation that withdrew from the pension fund without making withdrawal liability payments required by ERISA, according to a 7th Circuit decision reversing a district court ruling. Central States should also be granted reasonable time to properly serve the Barbados firm with its complaint. [Central States v. Phencorp Reinsurance, No. 05-2058]

Phencorp Reinsurance Company, a Barbados corporation, was a wholly-owned subsidiary of Philip Services Corporation (PSC), which until 2003 was subject to a collective bargaining agreement requiring contributions to be made to the Central States pension fund. After its bankruptcy and withdrawal from the pension fund in 2003, PSC and its controlled group failed make withdrawal liability payments to Central States as required under ERISA. Central States brought suit against Phencorp to recover withdrawal liability payments, serving its complaint upon a U.S. resident who it incorrectly believed to be a Phencorp director, based on misleading information provided by PSC.

Phencorp filed for dismissal, claiming that its only U.S. contact - its parent PSC - was insufficient to establish the “minimum contacts” required to give the district court personal jurisdiction. Phencorp also claimed that Central States’ service of process was insufficient, since the individual served by the pension fund was not affiliated with Phencorp at the time he was served. Central States responded with requests for discovery concerning the personal jurisdiction issue and extension of time to effect service. The district court granted Phencorp’s motion to dismiss and denied Central States’ motions.

The appellate court found that the district court erred by considering only specific personal jurisdiction, failing to address whether general personal jurisdiction existed or might have been supported by additional discovery. Although Central States had not yet met its burden of demonstrating the existence of general personal jurisdiction, it had succeeded in making a prima facie case for personal jurisdiction, hence deserved the opportunity to conduct discovery on the matter. The appellate court further reversed the district court’s denial of Central States’ motion for an extension of time to serve Phencorp with its complaint.

Moody’s Considers Rating Methodology for Multiemployer Pension Plan Sponsors

Moody’s Investors Service is proposing a methodology to reflect the underfunding of multiemployer pension plans in the rating of employer sponsors, as described in Multiemployer Pension Plans: Moody’s Analytical Approach (1/06, © 2005 Moody’s).

Moody’s seeks comment from interested parties by February 28, 2006.

Multiemployer Pension Plan Funding Notices

Final regulations requiring the administrator of a multiemployer pension plan to provide annual notice of the funding status of the plan have been published by the Department of Labor’s Employee Benefits Security Administration. [Release No. 06-20-NAT; Reg. 2520.101-4] The final regulation is substantially similar to rules proposed by EBSA last February.

Changes and clarifications included in the final regulation -

• The notice need not be provided to entities in the same controlled group as a participating employer otherwise eligible to receive a notice.

• Notification is not required to any employer that has withdrawn under ERISA 4203, regardless of annual withdrawal liability payments being made to the plan.

• As had been provided in the proposed regulation, plan administrators may add information to the notice, provided the supplemental information is necessary or helpful to understanding the notice’s mandatory information. The final regulation requires that any such additional information be added at the end of the notice under the heading, “Additional Explanation.”

The model notice provided in the regulations was changed from the proposed regulation model notice in two respects -

• Plan Funding Information - Expanation was added to provide context for understanding the significance of the plan’s funded current liability percentage, including text noting that funded current liability is not necessarily indicative of the funding of the plan in the future or upon plan termination.

• Explanation of Plan Insolvency - The notice’s section on plan insolvency was expanded to more fully explain rules relating to insolvent plans. Additional language includes an explanation that a plan that becomes insolvent must promptly notify participants of the insolvency and explain how benefits will be affected.

Use of the model notice is not mandatory, but would be deemed to satisfy the content, style, and format requirements of the regulations with respect to prescribed information. The preamble of the final regulation expresses the Labor Department’s view that if a plan adds supplementary information to a model notice, the notification will retain deemed compliance status if the supplementary information satisfies conditions placed on the inclusion of such additional information.