ERISA — Plan withdrawal — rates

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The district court correctly upheld an arbitrator’s award when an employer withdrew from a multiemployer defined-benefits pension plan, where trustees had previously directed the plan actuaries to use the Funding Rate, rather than the Blended rate, to calculate withdrawal liability.

The arbitrator ruled that the pension plan’s trustees had over assessed CPC’s withdrawal liability by $1,093,000. The district judge upheld the arbitrator’s ruling.
The plan in this case retained a prominent pension benefits actuarial firm, the Segal Company, to determine whether the plan met its minimum funding requirements and also what the withdrawal liability of each of its participating employers would be if one or more of them withdrew from the plan in the coming year.

“In 2004 the plan’s trustees directed the Segal Company to revert to using the Segal Blended Rate to calculate the plan’s unfunded vested benefit pools for withdrawal-liability purposes. That rate was lower than the Funding Rate (as it had been in every year since 1996 except 2000), but the plan’s priorities apparently had changed, from attracting more employers with the prospect of low withdrawal liability (by assuming a high interest rate and therefore a rapid growth in the fund’s assets) to extracting higher exit prices from employers who withdrew (by assuming a low interest rate and in consequence a sluggish rate of asset growth and so a larger shortfall.).

“The reversion to the Segal Blended Rate in 2004 was a major factor in causing the plan’s unfunded vested benefits to leap from $67 million to $117.2 million that year. It was the plan’s use of the higher Funding Rate from 1996 to 2003, coupled with the reversion to the lower Segal Blended Rate thereafter, that increased CPC’s withdrawal liability by $1,093,000 from the amount it would have owed had the Segal Blended Rate been used throughout the period….

“ERISA requires the plan’s trustees to base its calculation of withdrawal liability on the actuary’s ‘best estimate.’ 29 U.S.C. § 1393(a)(1). Segal maintains, and the plan does not dispute, that the Segal Blended Rate, not the Funding Rate, was its best estimate of the right interest rate to use to calculate withdrawal liability. The arbitrator therefore sensibly concluded that the pools had not been calculated ‘on the basis of . . . actuarial assumptions . . . which, in combination, offer the actuary’s best estimate of anticipated experience under the plan’ in years when the Funding Rate was used in lieu of a lower Segal Blended Rate.”

Affirmed.

No. 11-3034, Chicago Truck Drivers, Helpers and Warehouse Workers Union (independent) Pension Fund v. CPC Logistics Inc., Northern District of Illinois, Eastern Division, Zagel, J., Posner, J.

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