October 15, 2019

October 15, 2019

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October 14, 2019

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In with a Bang and Out with a Whimper: Second Circuit Challenge to Popular Withdrawal Liability Calculation Method Settles

The withdrawal liability case of the year came to an anticlimactic end on Monday, September 16, 2019, as the Second Circuit docket sheet of New York Times Company v. Newspaper and Mail Deliverers' Publishers' Pension Fund pinged to life with a stipulation withdrawing the case with prejudice.

The most-watched issue in the case was a challenge to the Segal Blend discount rate assumption used by many multiemployer pension plans to calculate employer withdrawal liability. The discount rate assumption can have a massive effect on an employer's withdrawal liability as even a small variation can dramatically increase a withdrawal calculation.

The New York Times Company (New York Times) challenged the Newspaper and Mail Deliverers' Publishers' Pension Fund’s (Fund’s) use of the Segal Company's eponymous Segal Blend method to calculate its withdrawal, claiming that the Segal Blend rate artificially inflated the calculation by not representing the actuary's best estimate of plan experience. Using identical language, ERISA requires actuaries to select a discount rate for withdrawal liability and an interest rate for minimum funding purposes that reflect the actuary's "best estimate of anticipated plan experience." The crux of the New York Times' argument was that, because the Fund's 7.5% interest rate reflected the actuary's best estimate, the 6.5% Segal Blend rate did not, and the Fund must employ a higher rate, thus decreasing the withdrawal liability.

At trial, the Southern District of New York reversed the arbitrator (who upheld the Segal Blend), finding that the Segal Blend runs afoul of the statutory requirement to use a discount rate that reflects the actuary's best estimate of anticipated plan experience. The court held that the discount rate assumption must represent the actuary's best estimate based on the likely returns of the plan, not the returns of a hypothetical portfolio as the Segal Blend does.

The dismissal of the case means that the Southern District of New York's opinion still stands. Although the opinion will not be binding authority for many employer withdrawals, it should provide helpful authority that will continue to assist employer challenges to withdrawal liability assessments that use the Segal Blend. Meanwhile, the District of New Jersey’s decision upholding the use of the Segal Blend in Manhattan Ford Lincoln, Inc. v. UAW Local 259 Pension Fund will assist funds defending their use of the Segal Blend. That case settled prior to being considered by the Third Circuit.

Although it may be disappointing to those in the pension world who were closely following the case, it is not a complete surprise that the case settled. During oral argument, the three appellate judges appeared to be unconvinced that the Segal Blend method could meet the standard of the statute where the actuary testified that it was not her best estimate. With the split in district court opinions, it is unlikely that this is the end of the road for such cases as challenges to actuarial discount rate assumptions continue to percolate up to the federal courts.

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About this Author

Gregory J. Ossi ERISA Lawyer Drinker Biddle
Partner

Gregory J. Ossi advises his clients on ERISA litigation and labor law matters. He regularly counsels employers on a broad range of employee benefits matters, with an emphasis on multiemployer pension liability, including withdrawal liability issues and claims, as well as other health plan issues.

In addition to his work in the employee benefits area, Greg counsels and litigates disputes regarding union organizing, unfair labor practice charges, and labor issues arising from mergers, acquisitions and bankruptcy. Greg’s clients come largely from the energy production...

(202) 230-5393
Chris Williams Litigation Attorney Drinker Biddle
Associate

Christopher R. Williams handles litigation and counseling matters on behalf of employers in the construction, mining, education, health care, hospitality, nonprofit and retail sectors. He represents employers in matters involving employee benefit issues that arise under ERISA and the Multiemployer Pension Plan Amendments Act.

Chris also has experience with traditional labor and employment counseling and litigation. Chris helps employers handle the negotiation and administration of collective bargaining agreements, disputes with multiemployer pension plans, and unfair labor practice charges filed with the National Labor Relations Board. Chris regularly advises clients on the development and implementation of employment policies, handbooks, and agreements, in addition to conducting due diligence in corporate mergers and acquisitions, and advising clients on compliance with the Family and Medical Leave Act and the Americans with Disabilities Act.

(202) 230-5398