Supreme Court Addresses Rules For Employer Withdrawal From Multiemployer Pension Plans

M&K Employee Solutions, LLC v. Trustees of the IAM National Pension Fund, No. 23-1209

Introduction

Today, the Supreme Court unanimously held that the actuarial assumptions underlying the calculation of an employer’s withdrawal liability from an underfunded multiemployer pension plan can be selected after the date the employer left the plan.

Background

The Employee Retirement Income Security Act of 1974 (ERISA) provides that when an employer stops participating in an underfunded multiemployer pension plan, it must pay “withdrawal liability” – meaning the employer’s share of the plan’s unfunded vested benefits. 29 U.S.C. § 1391. Withdrawal liability is calculated as of the last day of the plan year preceding the employer’s withdrawal. Id. § 1391(b)(2)(E)(i). This amount depends on certain actuarial assumptions about the plan, including the discount rate, which seeks to assign present value to future benefit payments.

Petitioners are four employers that stopped participating in the IAM National Pension Fund. The Fund used a discount rate of 6.5% to estimate the present value of vested benefits, even though the Fund had previously used a higher discount rate (7.5%) in the preceding year. This had the effect of significantly increasing the employers’ withdrawal liability obligations. The federal district court agreed with the Fund and held that actuaries may use actuarial assumptions adopted after the withdrawal measurement date, so long as they use factual information supporting the assumptions as of that date. The D.C. Circuit affirmed, similarly holding that actuaries may select their assumptions after the measurement date.

Issue

Whether ERISA’s instruction to calculate withdrawal liability “as of the end of the plan year,” 29 U.S.C. § 1391(b)(2)(E)(i), allows the plan to use actuarial assumptions adopted after, but based on information available as of, the end of that year.

Court’s Holding

In a unanimous opinion authored by Justice Jackson, the Supreme Court held that ERISA does not require that the actuarial assumptions used to calculate an employer’s withdrawal liability from an underfunded multiemployer pension plan be selected on or before the date the employer stopped participating in the plan.

The Court noted that ERISA imposes few substantive requirements on the selection of actuarial assumptions. For withdrawal liability, ERISA provides that the actuary must use “actuarial assumptions and methods which, in the aggregate, are reasonable (taking into account the experience of the plan and reasonable expectations) and which, in combination, offer the actuary’s best estimate of anticipated experience under the plan.” 29 U.S.C. § 1393(a)(1). Meanwhile, another section of ERISA sets out the methods that plans can use to calculate withdrawal liability, and it does not mention actuarial assumptions. Id. §1391. Instead, it merely directs that withdrawal liability be calculated based on the plan’s unfunded vested benefits “as of” the measurement date. Id. § 1391(b)(2)(E)(i).

The Court rejected the employers’ attempt to “freeze” any actuarial assumptions as of the measurement date. The Court explained that actuarial assumptions are “tools” used to make “predictive judgments about a plan’s anticipated future performance,” not unalterable facts that are in effect as of a date certain. As a result, the Court said that the “as of” language in Section 1391 sets a reference point for factual inputs that go into the unfunded vested benefits calculation, but does not indicate when actuaries must select their assumptions that use those inputs.

The Court’s decision will affect future ERISA claims involving employer withdrawals from underfunded multiemployer pension plans. In those cases, plans will have broader leeway to make actuarial assumptions about the plans’ value when assessing employer withdrawal liability.

Read the opinion here.