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First Crack in the Armor of the Segal Blend?

The Segal Group is the premier actuarial firm in the country providing services for hundreds of multi-employer pension funds.  For almost 40 years it has used its own methodology, known as the “Segal Blend” to calculate employers’ withdrawal liability successfully without an adverse ruling by either a court or an arbitrator in hundreds of cases.

The Segal Blend calculates the discount rate used in determining the present value of pension benefits for payment by a pension fund in the future.  This methodology has been the basis for the discount rate used in calculating withdrawal liability for hundreds of multi-employer plans.  Because the Segal Blend typically results in using a lower interest rate to calculate withdrawal liability than is typically used for funding purposes, a calculation of withdrawal liability is generally greater using the Segal Blend rate.  This has permitted pension funds to collect additional withdrawal liability from hundreds of employers.

Despite being challenged often by employers, the Segal Blend had enjoyed a perfect record of being upheld in every arbitration and court decision until March 26, 2018.  In a decision by the United States District Court for the Southern District of New York, Judge Sweet in New York Times Company and the Newspaper and Mail Deliverers ‘-Publishers ‘ Pension Fund found that the Segal Blend violated ERISA.  Specifically, the District Court found that the actuary’s “best estimate” of anticipated experience under the plan would have required an interest rate assumption of 7.5%, the rate used for funding purposes, rather than the 6.5% interest rate produced by the Segal Blend.  The District Court ordered the Pension Fund to recalculate the withdrawal liability using the higher interest rate.

The matter was appealed to the United States Court of Appeals for the Second Circuit.  In May 2019, oral argument was held.  Last week the case ended.  Surprisingly, the parties stipulated by which the appeal was withdrawn with prejudice and counsel fees were not sought.    Importantly, for employers the stipulation left intact Judge Sweet’s decision that using the Segal Blend violated ERISA.  The Second Circuit approved that settlement on September 16, 2019.

What are the implications of that stipulation for employers and what factors in Judge Sweet’s decision contributed to the resolution?  In New York Times, the decision reduced a withdrawal liability assessment of $26,000,000 to zero.  Employers contributing to funds using the Segal Blend should not hesitate to retain actuaries to calculate the withdrawal liability using the rate for funding purposes.

Although the ruling does provide another arrow in an employer’s quiver to use in combatting the predominantly fund favored withdrawal liability process, it does not resolve or even clarify the issue.

Almost concurrently with Judge Sweet’s ruling, District Judge McNulty of the United States District Court for the District of New Jersey in Manhattan Ford Lincoln, Inc. v. UAW Local 259 Pension Plan (“Manhattan Ford”) upheld an arbitrator’s ruling that using a plan’s funding assumption is not required to determine withdrawal liability.  In so ruling, the Court determined that the employer had failed to prove that the Pension Fund’s use of the Segal Blend in calculating withdrawal liability was not reasonable.  Notably, use of the 7.5% interest rate for funding purposes would have resulted in no withdrawal liability.

Manhattan Ford was appealed to the United States Court of Appeals for the Third Circuit but was settled before the court reached a decision.

Although the Segal Blend issue has not been resolved, the recent resolution should provide an incentive for employers to conduct additional research into the funds to which they contribute and to retain ERISA counsel with specific experience and expertise in withdrawal liability. 

Jackson Lewis P.C. © 2020National Law Review, Volume IX, Number 275


About this Author

Paul A. Friedman, Jackson Lewis, ERISA plan sponsors lawyer, fiduciaries attorney

Paul A. Friedman is a Principal in the White Plains, New York, office of Jackson Lewis, P.C. He has tried more than 35 jury trials and hundreds of arbitrations and bench trial on all aspects of ERISA.

Mr. Friedman has more than 35 years of experience in litigating cutting edge ERISA issues before the United States Department of Labor, United States district courts, bankruptcy courts and courts of appeal on behalf of employers, plan sponsors and fiduciaries of ERISA plans across a wide breadth of industries, including...

(914) 872-8060
Adam Cantor Employment Attorney Jackson Lewis

Adam B. Cantor is a Principal in the White Plains, New York, office of Jackson Lewis P.C. His practice focuses on employee benefits, ERISA fiduciary compliance and planning, employment law, executive and equity compensation, and business succession planning. Mr. Cantor's clients include private and public companies, compensation committees of public companies, boards of directors and trustees, hedge funds, private equity investors, non-profit organizations, executives, and management teams.

Mr. Cantor has advised clients on a wide variety of matters in the areas of employee benefits, ERISA, executive compensation, and deferred compensation, including:

  • Design and compliance issues relating to qualified retirement plans, including controlled group and EPCRS issues
  • 409A planning and compliance for nonqualified deferred compensation plans and employment, severance and change in control agreements
  • Discharge of fiduciary duties by administrative and investment committees of 401(k) and other qualified retirement plans
  • ERISA prohibited transaction avoidance and correction, including Voluntary Fiduciary Correction Program applications
  • Equity compensation design and compliance, including stock options, restricted stock, restricted stock units, stock appreciation rights, phantom stock and LLC- and partnership-based equity compensation arrangements
  • Structuring and negotiation of executive compensation and benefits packages on behalf of both companies and executives/management teams (with special tax knowledge in 409A, 162(m) and 280G issues)
  • Dodd-Frank, SEC and Exchange compliance by compensation committees of public companies
  • Proxy disclosure for public companies relating to executive and director compensation
  • International executive and equity compensation matters, particularly those involving U.K. public companies with U.S. subsidiaries
  • Best practices for compensation committees and boards of directors of private companies and boards of trustees of non-profit organizations with respect to executive compensation matters
  • Intermediate sanctions compliance and excess benefit transaction avoidance for executives of non-profit organizations and IRS Form 990 reporting related thereto
  • Structuring of employee benefits-related business transactions, including ESOP purchases of employer stock and qualified plan spin-offs, mergers and consolidation
  • Employee benefits issues and planning opportunities arising in connection with corporate transactions and bankruptcy proceedings
  • Negotiations with governmental agencies, including the IRS, DOL and PBGC
  • Mitigation strategies for employers with respect to multiemployer withdrawal liability
  • Welfare plan design and compliance, Including COBRA, HIPAA, HITECH and Health Care Reform