Caesars Entertainment Corp. has won a lawsuit against the International Union of Operating Engineers Local 68 Pension Fund, a New Jersey multi-employer pension plan that was seeking $2 million in withdrawal liability after the casino operator’s Showboat casino closed in Atlantic City.
The case centered on a type of partial withdraw under the Multiemployer Pension Plan Amendments Act (MPPAA) known as “bargaining out.” This takes place when an employer is no longer obligated to contribute under one or more—but fewer than all—collective bargaining agreements under which the employer has been obligated to contribute, but continues to perform work of the type for which contributions were previously required.
The Third Circuit court ruled that because Caesars continued to contribute to the pension fund on behalf of other Atlantic City properties it owned after the Showboat closed, it therefore didn’t withdraw from the pension fund and doesn’t owe extra money for withdrawal liability.
Caesars once operated four casinos in Atlantic City—Caesars, Bally’s, Harrah’s, and Showboat—which made up a so-called “controlled group” under The Employee Retirement Income Security Act of 1974 (ERISA), with the company being the “single employer” of the group. The company bargained with the International Union of Operating Engineers, Local 68 for engineering work at all four casinos.
Under their collective bargaining agreements with the union, each casino had to contribute to the union’s multiemployer pension fund, which had 259 contributing employers making approximately $14 million in annual payments.
In 2014, when the Showboat casino closed, Caesars stopped contributing to the fund for engineering work there. However, the other three casinos under the company’s control remained open, and Caesars continued to pay the fund for their union work. Showboat’s closure reduced the company’s total contributions to the fund by 17%, which is well below the MPPAA’s 70% threshold that would have automatically triggered liability for a partial withdrawal, said the Third Circuit.
Nevertheless, the fund claimed Caesars was liable under the bargaining out provision of the MPPAA. Caesars disagreed with the claim, and as a result both sides went to arbitration, where Caesars lost its case. The arbitrator said Caesars had triggered the bargaining out provision, explaining that the “type of work for which contributions were required at the closed Showboat is the same type of work currently being done at the remaining casinos.”
The arbitrator’s ruling was then reversed by the US District Court for the District of New Jersey, which ruled that liability exists only when an employer replaces work that contributes to the pension fund with similar work that does not contribute. The court said that such a replacement hadn’t occurred here because Caesars continues to contribute to the fund for all engineering work it performs throughout Atlantic City.
The Third Circuit then upheld the district court’s rulingand said the central question in the case is whether work of the type for which contributions were previously required includes work of the type for which contributions are still required.
“The statutory text and PBGC guidance confirm that the answer is no,” said the Third Circuit in its ruling. The court cited the 1992 Third Circuit case Crown Cork & Seal Co. v. Cent. States Se. & Sw. Areas Pension Fund, which found that “under the MPPAA, an employer who withdraws from a multiemployer pension plan becomes obligated to pay a proportionate share of the plan’s unfunded vested benefits.”
The court said the bargaining out provision at issue in the appeal typically applies when there is a change in union representation or the employer negotiates out of an obligation to contribute to a plan.
“Neither of those things happened here,” said the Third Circuit.