Court Clarifies Withdrawal Liability Construction Exception

The construction exception and the “substantially all” test

Special withdrawal-liability rules apply to the building and construction industry. Because work in the industry is generally on a project-by-project basis and is typically tied to a geographic area rather than an employer, when a project ends, an employer’s workers will likely remain in the labor pool available for employment by other contributing employers. The movement of employers in and out of a plan generally does not impact the financial viability of the plan. For this reason, the building and construction exception exempts employers from withdrawal liability.

That exception applies if (1) “substantially all” employees for whom the employer has an obligation to contribute perform work in the building and construction industry, and (2) the plan primarily covers construction employees or has been amended to extend the exception to construction work. The exception is tied to the work performed by employees for whom contributions are owed, not to the employer’s general industry classification.

The case, General Electric Company v. Boilermaker-Blacksmith National Pension Trust

The Boilermaker‑Blacksmith National Pension Trust (Fund), a multiemployer defined benefit plan, assessed GE for a partial withdrawal in the amount of roughly $205 million for a 70 percent decline in contribution base units and an additional partial withdrawal of $22 million tied to the closure of a facility. GE disputed the Fund’s withdrawal-liability assessments, claiming the construction exception applied.

The GE employees in question are boilermakers but perform different jobs. Field workers, who are responsible for repairing and constructing boilers, perform work in the building and construction industry whereas shop workers, who manufacture boiler components, do not. The parties stipulated that the Fund primarily covers employees in the building and construction industry and that “substantially all” in this case meant 85 percent of covered employees perform work in the building and construction industry. The parties also agreed that an eight-year lookback period applied.

The Fund and GE disagreed on how to measure the relevant employee population for the “substantially all” test. The Fund advocated a month‑by‑month headcount, while GE argued for a cumulative headcount across the relevant period.

Under the monthly headcount method, a “snapshot” is taken each month of the number of field and shop workers employed. If, in most months, field workers make up more than 85 percent of the total workers (on a month-by-month basis) GE qualifies for the exception. The cumulative headcount method counts all field and shop workers employed by GE during the lookback period. If field workers account for more than 85 percent of that total, GE qualifies for the exception. GE failed the 85 percent threshold under the Fund’s monthly method (the exception would not apply) but met it under GE’s cumulative method (the exception would apply).

An arbitrator held that GE qualified for the exception, and the District Court for the Western District of Missouri affirmed.

Cumulative headcount deemed a better measure based on facts

The Appeals Court held that ERISA is ambiguous as to how employees must be counted for purposes of determining whether “substantially all” covered employees perform work in the building and construction industry.

As the statute does not prescribe a method, the Appeals Court compared the Fund’s monthly headcount and GE’s cumulative headcount approaches. It concluded that, based on the facts of the case, GE’s cumulative approach was “less arbitrary and more faithful to the statute and the congressional intent behind it” than the Fund’s monthly method.

The Appeals Court reasoned that, of the two options, a cumulative measure better reflected the overall composition of the employer’s covered workforce and avoided results driven by short‑term variations in headcount that are inherent in construction‑related work.

Because GE satisfied the 85 percent “substantially all” threshold under the cumulative method on the stipulated record, GE qualified for the exception to withdrawal liability, and the appellate court affirmed the judgment in GE’s favor.

Importantly, the appellate court noted that a different set of facts may warrant different methods for counting employees to determine eligibility for the exception. It also stated that a plan and an employer may contractually agree on what method is used to determine “substantially all” employees work in the building and construction industry.

Implications for plans and contributing employers

One methodology for determining “substantially all”

As stated by the appellate court, a different set of facts may warrant a different result. By endorsing a cumulative headcount method for the “substantially all” test, the 8^th Circuit Court of Appeals’ decision provides a participant‑level measurement methodology for plans and employers within that circuit (Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota) and may be persuasive authority for courts in other circuits looking at this issue.

Plans that had been using month‑by‑month headcounts or other approaches may need to reevaluate their methodologies to avoid inconsistency with this interpretation, at least for similarly situated employers and plans located within the 8^th Circuit.

Continued focus on underlying work, not employer label

The exception hinges on whether the employees for whom the employer has an obligation to contribute perform building and construction work, and not on the employer’s industry label or corporate structure.

This decision, by focusing on headcount methodology rather than defining qualifying work, reinforces that plans and employers must carefully classify the actual nature of covered work and maintain records of which employees’ work is in the building and construction industry.

Plan administration and data‑tracking

Adoption of a cumulative method implies that plan sponsors and administrators must maintain longitudinal employee‑level contribution and classification data (i.e., construction vs. non‑construction work) over the relevant testing period, rather than relying solely on static monthly snapshots. This may impact how withdrawal‑liability risk is modeled, how contribution histories are stored, and how plan actuaries and legal counsel evaluate potential status when employers’ covered work mix changes over time.

Interaction with PBGC and mixed‑employer plans

Plans that primarily cover employees in the building and construction industry must use the presumptive allocation method. If non-construction employees are covered under the same plan, Pension Benefit Guaranty Corporation (PBGC) approval is required to use a different allocation method for employers of non-construction employees.

This appellate court decision may lead to more employers being treated as construction-industry employers. That, in turn, could affect how employers are classified for withdrawal-liability purposes and which allocation methods and PBGC approvals apply.