High court rejects out-of-date calculation for pension plan withdrawal

WASHINGTON (CN) — The Supreme Court on Thursday refused to place limits on how financial professionals calculate an employer’s liability for withdrawing from a multiemployer pension plan.

The weedy dispute over retirement funds netted a unanimous 12-page ruling from the justices, succinctly rejecting employers’ push to rely on stale data that could taint calculations.

“An employer that stops participating in an underfunded multiemployer pension plan must pay the plan ‘withdrawal liability’ — i.e., its share of the plan’s unfunded vested benefits,” Justice Ketanji Brown Jackson, a Joe Biden appointee, wrote for the court. “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.”

Jackson said the employer’s withdrawal liability was based on the value of the plan’s unfunded vested benefits “as of” the last 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,” Jackson wrote. “The Court of Appeals for the D. C. Circuit held that it does not, concluding that actuaries may select their assumptions after the measurement date. We agree.”

Multiemployer pension plans allow employers and unions to pool contributions into a general fund that can be used to pay any benefit obligation of the plan. Under the Employee Retirement Income Security Act of 1974, or ERISA, such plans must regularly consult with actuaries — risk-assessment professionals.

To increase the stability of these plans, Congress enacted the Multiemployer Pension Plan Amendments Act in 1980, requiring any withdrawing employer to fund its share of the plan obligations incurred during its association with the plan.

The employer’s withdrawal liability equals the difference between the present value of the vested benefits and the current value of the plan’s assets — also known as the plan’s unfunded vested benefits.

Four employers told the Supreme Court that the actuary miscalculated their withdrawal from the IAM National Pension Fund — which provides benefits to employees covered by collective bargaining agreements with the International Association of Machinists and Aerospace Workers, AFL-CIO.

Actuaries calculate the plan’s unfunded vested benefits “as of the end of the plan year preceding the plan year in which the employer withdraws.” Since the employers withdrew from the plan in 2018, they claimed the valuation date for their liability was Dec. 31, 2017.

In November 2017, the actuary valued the plan’s unfunded vested benefits at $934,736,763 using a 7.5% interest-rate assumption. However, the fund approved several changes in 2018, including an additional expense-load assumption requiring withdrawing employers to pay future administrative expenses.

With the 2018 changes, the unfunded vested benefits rose to $3 billion. The employers who withdrew from the fund said the changes made their liability three times higher than they expected.

Business groups warned against giving actuaries too much discretion over withdrawal liability and depriving employers of a fair estimate of the costs of leaving a multiemployer pension plan.

But Jackson said the employers’ policy concerns couldn’t overcome the statutory text. She said actuaries need flexibility to consider all relevant information about the plan’s performance and macroeconomic conditions that might not be available at the time the employers’ withdrew from the plan.

“Requiring actuaries to use assumptions selected before the measurement date could therefore prevent them from relying on the most up-to-date data when selecting their assumptions,” Jackson wrote for the court. “This, in turn, could mean that their assumptions do not reflect their ‘best estimate.’ More fundamentally, requiring actuaries to use assumptions based on stale data would result in an incoherent statutory scheme.”

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