SCOTUS: Multiemployer Plan Wins on Withdrawal-Liability Assumption Timing

The U.S. Supreme Court ruled Thursday that multiemployer pension plans do not have to use actuarial assumptions set before an employer’s withdrawal from the plan when calculating withdrawal liability.

The unanimous opinion in M&K Employee Solutions LLC et al. v. Trustees of the IAM National Pension Fund, written by Associate Justice Ketanji Brown Jackson, upheld a previous decision by the U.S. Court of Appeals for the D.C. Circuit, which had sided with the defendants.

In the original complaint, the International Association of Machinists and Aerospace Workers National Pension Fund was accused of mishandling the calculation of withdrawal liabilities—the unfunded vested benefits owed to the plan by four employers that left the plan in 2018. The liabilities had been calculated based on the unfunded balances of December 31, 2017. The pension fund applied a discount rate of 6.5% that it had adopted with its actuarial firm in January 2018, instead of the 7.5% rate it used at the end of 2017. A lower discount rate generally would result in the employers owing a higher amount.

The Supreme Court ruled that Sections 1391 and 1393 of the Employee Retirement Income Security Act, which cover ways of calculating withdrawal liability and the use of actuarial assumptions for assessing withdrawal liability, respectively, do not give a deadline by which actuaries must select their assumptions. Jackson wrote, “It is not the role of the Court to supplant Congress’s choices, as reflected in the statutory text, with our own.”

The employers had cited Section 1394 of ERISA, saying that new plan rules or amendments could not be applied to an employer’s withdrawal liability if they were adopted after the employer withdraws. However, the Supreme Court held that this argument “hurts rather than helps” the plaintiff’s case, as actuarial assumptions cannot be considered plan rules or amendments.

The plaintiffs had also argued that adopting actuarial assumptions after the measurement date would “open the door to manipulation,” but the Supreme Court decision held that only using assumptions from before the measurement date would not address that concern.

“Plans and actuaries could still select assumptions with an eye towards inflating withdrawal liability before the measurement date given the significant discretion they enjoy in selecting assumptions,” Jackson wrote.