Supreme Court to Hear Multiemployer Pension Plan Withdrawal Liabilities Case 

The U.S. Supreme Court will examine the way multiemployer pension plan withdrawal liabilities are calculated in its next term, the court announced on June 30.  

The court agreed to hear the case M & K Employee Solutions, Et Al. V. Trustees of the IAM Pension, in which the justices will decide how much flexibility pension plan actuaries have when calculating how much participating companies must pay when they withdraw funds from a multiemployer plan.  

Under the Employee Retirement Income Security Act of 1974, employers who participate in a multiemployer pension plan have the right to exit, but if the plan is underfunded, the employer must make a withdrawal liability payment to cover its share of the underfunding.  

In the case taken up by the Supreme Court, the pension fund’s actuary adopted new assumptions by lowering the discount rate to 6.5% from 7.5% in January 2018 and then assessed withdrawal liability for the 2018 plan year using the new assumptions.  

The U.S. Court of Appeals for the District of Columbia Circuit held that ERISA’s framework permits adopting assumptions after year-end so long as they reflect knowledge available as of that valuation date. 

The plaintiffs petitioned the Supreme Court arguing that IAM National Pension Fund’s use of updated actuarial assumptions with the lower interest rate, adopted after the official measurement date used to assess liability drastically increased their withdrawal payments, in some cases by millions of dollars in violation of ERISA. The pension fund serves members of the International Association of Machinists and Aerospace Workers. 

“The actuary’s post-measurement date revision of its interest rate assumption dramatically increased the plan’s estimated underfunding,” the petition for a writ of certiorari stated. “Using the 7.5% rate, the actuary calculated the plan’s underfunding for the 2016 plan year as just over $448 million. Using the 6.5% rate, the underfunding ballooned sixfold, to over $3 billion, for the 2017 plan year.” 

The nation’s highest court will now decide sometime during the term that begins in October whether a pension fund can retroactively change the assumptions used to calculate withdrawal liability.