Connolly v. Pension Benefit Guaranty Corporation

1986-02-26

Headline: Court upholds law requiring employers who leave multiemployer pension plans to pay their share of unfunded benefits, making it harder for withdrawing employers to avoid pension debts.

Holding: The Court ruled that Congress may impose withdrawal liability under the MPPAA and that requiring withdrawing employers to pay unfunded plan debts does not, on its face, amount to an unconstitutional taking under the Fifth Amendment.

Real World Impact:

Requires employers who withdraw to pay their share of unfunded plan liabilities.
Makes it harder for employers to rely on contract language to avoid pension debts.
Leaves open future challenges about fairness or how the law applies in particular cases.

Topics: pension rules, employer liability, retirement benefits, federal pension insurance

Summary

Background

A group of trustees who run a multiemployer construction-industry pension plan and an employer assessed a withdrawal bill sued the Pension Benefit Guaranty Corporation (PBGC). They argued the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) improperly forced employers to pay beyond their contract promises. The case reached a three-judge court, then the Ninth Circuit, and finally the Supreme Court for review of a facial challenge under the Fifth Amendment.

Reasoning

The central question was whether the MPPAA’s withdrawal liability is an unconstitutional taking of private property without compensation. The Court said no. It found the statute does not take assets for the Government’s own use and relied on familiar factors: the economic impact on employers, whether employers’ investment-backed expectations were defeated, and the character of the government action. The Court noted many MPPAA provisions that limit and moderate employer liability and held contractual limits cannot block a valid congressional regulation.

Real world impact

The ruling lets pension plans and trustees collect statutory withdrawal debts from employers who leave multiemployer plans. The opinion points out such debts can be substantial (one example was about $200,000, roughly 25% of that firm’s net worth). Congress enacted the law to protect plan solvency and participants’ benefits, so employers who participate in these plans face real financial exposure under the statute.

Dissents or concurrances

Justice O’Connor (joined by Justice Powell) concurred, agreeing with the result but warning the Court did not decide possible future challenges about unfair or arbitrary applications, retroactive burdens, or how the law fits different kinds of plans.