Noting that statements from attorneys in the case made no allowance for the court lacking specialized knowledge in federal pension law, Circuit Judge Richard Posner, writing for the 7th U.S. Circuit Court of Appeals, said, “We have applied ourselves to tugging the hide off this lion in search of the donkey underneath. We think we have found the donkey.” The court concluded that an actuarial determination that violates the Employee Retirement Income Security Act (ERISA) by not being based on the actuary’s best estimate is unreasonable, hence reversible by the arbitrator hearing the employer’s dispute of its withdrawal rate.
The actuary retained by the plan offered the trustees of the plan a choice of calculations for the employer’s withdrawal liability, and the court found the trustees’ decision questionable.
The court noted that during the period relevant to the case, ERISA required the plan actuary, in calculating interest rates as in making other actuarial determinations, to use assumptions which, “in the aggregate, are reasonable” and “which, in combination, offer the actuary’s best estimate of anticipated experience under the plan.” These requirements apply to determining both adequacy of funding to avoid a tax penalty and withdrawal liability. According to the court opinion, despite the identical statutory text for both calculations, the actuary retained by the Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Pension Fund, The Segal Company, used different formulas to arrive at its “best estimate” of the two rates. Its best estimates of the interest rates for tax and withdrawal-liability purposes were called the “funding interest assumption” and the “Segal Blended Rate,” respectively. The different methods yielded different interest rates.