Court Rules Method for Calculating Multiemployer Plan Withdrawal Liability Was Improper

A federal district court has ruled a multiemployer pension fund's use of the "Segal Blend" rate when assessing a member's withdrawal liability was, in this instance, improper.

The U.S. District Court for the Southern District of New York has ruled in a complicated dispute involving a carefully negotiated multiemployer collective bargaining agreement that governs certain aspects of the Newspaper and Mail Deliverers’-Publishers’ Pension Fund, which serves many newspapers in New York City.

This decision in particular involves a challenge to the results of arbitration engaged in by the multiemployer plan and the New York Times Company—among various other issues asking whether and to what extent the Times incurred and/or properly settled withdrawal liabilities arising from its partial withdraw from the multiemployer pension fund for plan years ending May 31, 2012, and May 31, 2013.

The ruling is technically issued on consolidated actions involving The New York Times Company, the Newspaper and Mail Deliverers’-Publishers’ Pension Fund, and the Board of Trustees of the Newspaper and Mail Deliverers’-Publishers’ Pension Fund. The parties cross-moved for summary judgment under Federal Rule of Civil Procedure 56 on their respective requests to modify or vacate an arbitration award issued by the court-assigned assigned arbitrator Mark L. Irvings in American Arbitration Association (AAA) Case No. 01-14-1433 on July 19, 2017, pursuant to the Employee Retirement Income Security Act (ERISA), as amended by the Multiemployer Pension Plan Amendment Act of 1980 (MPPAA).

In the colorfully written opinion, the district court judge notes that the instant motions “present a veritable Augean Stables of issues to be resolved, a cavalcade of sharp disputes that have been distilled down by the parties and their skilled counsel to four principal issues.”

Put simply, these issues are as follows: “(1) whether the Times incurred liability by partially withdrawing from the fund for plan years ending May 31, 2012, and May 31, 2013; (2) whether the discount rate used by the fund when assessing the Times’ withdrawal liability was appropriate; (3) whether the fund applied the proper statutory procedure to calculate liability for the second partial withdrawal; and (4) whether and to what extent the Times is entitled to interest on the repayment of overpaid withdrawal liability.”

On these issues, the U.S. District Court for the Southern District of New York has ruled first that the Times did in fact incur withdrawal liability, “and the Arbitrator’s finding that the CBA’s contribution base unit under 29 U.S.C. § 1301(a) (11) was shifts has not been rebutted.” Second, the court has ruled the fund’s “use of the Segal Blend rate when assessing the Times’ withdrawal liability was, in this instance, improper, and the Arbitrator’s finding to the contrary is reversed.” Third, the fund’s calculation of the Times’ second partial liability was ruled to be improper. Lastly, the court ruled the Arbitrator “correctly determined that the Times was entitled to interest on overpaid withdrawal liability, and [the Arbitrator’s] conclusion as to the applicable interest rate has not been rebutted.”

Perhaps the most important result for readers of PLANSPONSOR comes out of the second question, and the fact that the ruling rejects the multiemployer plan’s usage of the so-called “Segal Blend” to set its discount rate for paying its withdrawal liability. Historically, use of this discount rate by large multiemployer pension plans has resulted in exiting members paying larger cash amounts than they otherwise would if other methods of setting the rate were used.  

As laid out in the text of the decision, the multiemployer pension fund’s actuary, The Segal Company, after concluding that the Times had partially withdrawn from the fund, used a discount rate of 6.5%, known in the industry as the Segal Blend, which was calculated by blending the fund’s investment-return rate of 7.5% with lower, risk-free rates published by the Pension Benefit Guaranty Corporation (PBGC).

“This rate was different than what the fund used when calculating the Times’ minimum funding requirements,” the court explains. “As such, the parties dispute whether the asymmetrical application of the Segal Blend was legally permissible.”

The decision goes on: “The Times contends that the fund’s actuary’s use of the Segal Blend violated both ERISA and Supreme Court precedent. First, the Times argues that the rate the fund used for calculating minimum funding requirements, 7.5%, needed to be the same that was used for any withdrawal liability calculations. In support, the Times identifies identical language in ERISA between the minimum funding rules and withdrawal liability calculations, both of which require an actuary to use rates that 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.’”

Congress’ use of identical language, the Times contends, meant that the same assumptions, and, therefore, the same rates, were to be used in both cases. In addition, the Times points to the Supreme Court’s decision in Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension Tr. for S. Cal., which discussed “the necessity” of a fund actuary to apply “the same assumptions and methods in more than one context,” particularly highlighting a fund’s interest rate assumption.

Based on those statements, the Times avers that the pension fund’s actuary’s use of the Segal Blend solely for the purpose of calculating withdrawal liability was wrong. Lastly, the Times argues that the Segal Blend’s estimation was not the best estimate of the anticipated experience of the fund, because a blend of risk-free rates does not represent the fund’s actual investment portfolio.

The text of the decision includes extensively detailed consideration of this matter. Ultimately, the judge has ruled that, “in sum, the actuary’s testimony, combined with the untethered composition of the Segal Blend and paucity of analysis by the Arbitrator, create a definite and firm conviction that a mistake has been made in accepting the Segal Blend; as such, this Court will set the findings aside even though there is evidence supporting them that, by itself, would be considered substantial. … Accordingly, the Arbitrator’s decision that the Segal Blend was the appropriate rate to calculate the Times’ partial withdrawal is reversed. In the absence of additional evidence sufficient to support a different rate, the Times’ liability should be recalculated using the 7.5% assumption testified to as the best estimate.”

Segal’s Senior Vice President and General Counsel Margery Sinder Friedman shared the following statement in response to the ruling: “We view the ruling, which is limited to the jurisdiction of the US District Court for the Southern District of New York, to be an aberration from the many settled cases around the country that have diligently examined the question of what interest rate assumptions are reasonable for calculating withdrawal liability.  The Segal Blend is one common method, as are other means, to determine a settlement value when an employer leaves the plan.  In fact, the Court in this case interpreted the statute to say that the ongoing funding interest rate assumption is not the only method multiemployer pension plan actuaries can use.  We are very interested in seeing how this matter is resolved upon appeal, and plan to file a friend of the court brief seeking to reverse the decision.”

Read the full text of the decision here.

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