Federal Court Upholds Actuary’s Use of Discount Rate in Withdrawal Liability Calculation

Brian A. Pepicelli, Esq., bpepicelli@tuckerlaw.com, (412) 594-3953

In recent years, employers have increasingly brought challenges claiming that it is unreasonable for a multiemployer pension plan’s actuary to calculate withdrawal liability using a rate that is lower than the plan’s minimum-funding rate.  Using a lower rate can have the effect of increasing the overall amount of the employer’s withdrawal liability significantly.  Although the consensus among the courts is that such a practice is not per se unreasonable, they have reached different conclusions as to whether it is unreasonable under the particular circumstances presented. 

In United Mine Workers of Am. of 1974 Pension Plan v. Energy West Mining Co., 2020 WL 2615536 (D.D.C. May 22, 2020), the plan actuary calculated the employer’s withdrawal liability using the PBGC default rate — a rate that is even lower than another common discount rate, known as the “Segal Blend,” which has been the subject of several attacks in the past few years.  The “absolute difference” in the amount of withdrawal liability based on the actuary’s use of the lower PBGC rate, as opposed to the plan’s minimum-funding rate, was approximately $75 million.  Nonetheless, because the record supported the conclusion that the actuary’s assumptions were reasonable in the aggregate and were his own best estimate, free from undue influence by interested parties, the court upheld the arbitrator’s award in favor of the plan.