Supreme Court Rules Pension Plans May Use Post-Measurement-Date Actuarial Assumptions For Withdrawal Liability

The U.S. Supreme Court recently ruled that the Employee Retirement Income Security Act (ERISA) does not require multiemployer pension plans to use actuarial assumptions to calculate withdrawal liability adopted before a certain deadline. In M & K Employee Solutions, LLC v. Trustees of the IAM National Pension Fund, the unanimous Court affirmed the ruling of the U.S. Court of Appeals for the D.C. Circuit, thus resolving a split between the circuit courts of appeal on the issue.

When an employer leaves a multiemployer pension plan, it must pay its share of unfunded vested benefits, known as withdrawal liability. The measurement date of the withdrawal liability is the last day of the plan year before the withdrawal. In IAM National Pension Fund, the employer withdrew from the plan in 2018 using a measurement date of December 31, 2017. However, the plan adopted discounted actuarial assumptions in January 2018. Hence, the fund applied the lower rate to the measurement-date calculation, resulting in substantially increased unfunded vested benefits for the plan and in greater withdrawal liability for the employer. The application of the new actuarial assumptions led to an increase in M&K Employee Solutions’ withdrawal liability from about $1.8 million to $6.2 million. Although arbitrators sided with the employers, federal district courts and the D.C. Circuit upheld the plan’s use of the discounted actuarial assumptions.

M&K argued before the Supreme Court that ERISA requires plans to adopt applicable actuarial assumptions no later than the measurement date for calculating withdrawal liability. However, the Court noted that ERISA contains no such deadline for adopting assumptions.

Furthermore, the Court contrasted “hard data,” which ERISA fixes as of the measurement date, including plan assets and participant numbers, and actuarial assumptions, which are merely predictions. Since plans use assumptions only to value future obligations, the adoption of assumptions after the measurement date violates neither ERISA’s measurement date requirement nor its reasonableness standard. Additionally, under standard ERISA actuarial practice, using assumptions adopted after the measurement date can be appropriate when they reflect the actuary’s best estimate of projected plan experience based on available data.

The Supreme Court ruling thus allows multiemployer plans enhanced flexibility in choosing actuarial assumptions for calculating withdrawal liability. So long as the designated actuarial assumptions are reasonable, the timing of their adoption is unimportant. Of course, plans do not enjoy unlimited discretion, as employers may continue to challenge assessments through arbitration based on reasonableness and other grounds under ERISA. However, the IAM National Pension Fund ruling makes calculating future withdrawal liability more complex and uncertain, as year-end valuations may not reliably indicate which assumptions a plan opts to apply on a given measurement date. As this decision indicates, changes in discount rates or assumptions adopted after the measurement date can substantially affect assessments.

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