Pension Actuary’s Win Creates Circuit Split on Exit Liability

Pension actuaries have flexibility to calculate the money owed by withdrawing employers using factors established after the date an employer’s liability is measured, the DC Circuit ruled Friday in a victory for a machinists’ union pension fund.

The dispute centers on how much discretion pension fund actuaries have in setting the interest rate assumptions used to calculate the money employers owe when they stop participating in a multiemployer fund for various reasons. Small changes in these assumptions—some of which attempt to forecast future investment returns—can cause large variations in an employer’s withdrawal liability assessment.

In this case, the actuary for the IAM National Pension Fund calculated the withdrawal liability of employers leaving the plan in 2018 using the 6.5% discount rate adopted by the fund in January of that year. The employers, M&K Employee Solutions LLC and Ohio Magnetics Inc, said federal law required the actuary to use assumptions in effect on the “measurement date"—the last day of the plan year preceding their 2018 withdrawal—which here was the 7.5% discount rate used to perform the fund’s annual calculations in 2017.

The US Court of Appeals for the D.C. Circuit sided with the pension fund, saying it was free to use actuarial assumptions adopted after the measurement date. But those assumptions still must be “‘as of’ the measurement date—that is, the assumptions must be based on the body of knowledge available up to the measurement date,” the court said, quoting the district court decision favoring M&K.

The court’s opinion creates a circuit split with the Second Circuit, which ruled in 2020 that pension funds must calculate liability using the interest rate assumption in effect on the measurement date. The DC Circuit called that opinion “counter to the text” of federal pension law, which is focused on protecting multiemployer pension funds and their participants.

Judge J. Michelle Childs wrote the opinion. Judges Neomi Rao and Justin R. Walker joined.

Proskauer Rose LLP represents the pension fund. Scopelitis Garvin Light Hanson & Feary PC and Morgan, Lewis & Bockius LLP argued on behalf of the employers.

The case is Trs. of IAM Nat’l Pension Fund v. M&K Emp. Sols., LLC, D.C. Cir., No. 22-7157, 2/9/24.