M & K Employee Solutions, LLC v. Trustees of IAM Nat. Pension Fund

an employer that stops participating in an underfunded multi-employer pension plan must pay the plan withdrawal liability, that is, its share of the plan's unfunded vested benefits.

Calculating the unfunded vested benefits is a complicated endeavor because the plan's actuary must predict the value of the plan's future assets and obligations.

To do so, the actuary makes certain assumptions about for example, retirees' life expectancies and the anticipated growth rate of the plan's investments.

By statute, an employer's withdrawal liability is based on the value of the plan's unfunded vested benefits as of the last day of the plan year preceding the employer's withdrawal, also known as the measurement date.

The question presented in this case is whether the as of language sets the measurement date as the deadline by which actuaries must select the assumptions that underlie the withdrawal liability calculation.

The Court of Appeals for the DC Circuit held that it does not, concluding that actuaries may select their assumptions after the measurement date.

We agree.

The statute governing the selection and use of actuarial assumptions in the withdrawal liability context contains no requirement that actuaries use assumptions adopted prior to the measurement date.

The Employee Retirement Income Security Act of 1974, known as ERISA, provides comprehensive regulation for private pension plans.

One type of pension plan that ERISA regulates is a multi-employer pension plan, MPP.

An MPP is a plan to which more than one employer contributes and is maintained to fulfill the terms of collective bargaining agreements.

As amended by the Multi-Employer Pension Plan Amendments Act of 1980, ERISA requires employers that withdraw from an underfunded MPP to pay withdrawal liability.

Withdrawal liability reflects the employer's share of the plan's unfunded vested benefits , that is, the difference between the present value of the benefits owed to employees and the current value of the plan's assets.

By requiring employers to pay their share of the UVBs, ERISA seeks to ensure that plans do not become insolvent when employers withdraw.

Section 1391 specifies the methods that plans may use to calculate withdrawal liability.

The common feature of each method is the requirement that withdrawal liability be calculated based on the plan's UVBs As of the last day of the plan, you're preceding the employer's withdrawal, the measurement date.

Determining a plan's UVBs is not a matter of simple arithmetic.

The value of the UVBs depends upon both hard data about the plan, such as the number of beneficiaries and the value of the plan's assets, and a variety of predictions about the future.

For example, how many employees will draw on their benefits and for how long? And what is the value of those future benefits in today's dollars? To make these predictions, a plan's actuary must select demographic and economic assumptions about how the plan's assets and obligations will change over time.

A key actuarial assumption, the one relevant here, is the discount rate, the interest rate used to discount future benefit payments to their present value.

A higher discount rate reduces the value of the plan's UVBs.

Lower UVBs, in turn, correspond to a lower withdrawal liability for employers.

Actuaries select the assumptions underlying their UVB calculations based on relevant current and historical data, including growth in the plan's earnings, inflation, yields on securities, and other macroeconomic conditions.

ERISA imposes few substantive requirements on the selection of these assumptions.

Section 1393, which governs the use of actuarial assumptions in calculating withdrawal liability, says only 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.