Supreme Court Gives Pension Actuaries Exit Bill Flexibility (2)

Pension funds have flexibility to calculate the liability of withdrawing employers using methods adopted after the date set by law, the US Supreme Court held Thursday, ruling against companies that raised concerns about unpredictable and inflated bills.

The federal law governing withdrawal liability calculations “contains no requirement that actuaries use assumptions adopted prior to the measurement date,” the court said in a unanimous opinion by Justice Ketanji Brown Jackson. The Employee Retirement Income Security Act “imposes few substantive requirements” on how pension actuaries select the assumptions underlying these calculations, she said for the court.

The case asked the justices to resolve a circuit split over the interest rate assumptions used to calculate the money owed by companies pulling out of multiemployer pension funds. Small changes in these assumptions can cause big swings in an employer’s financial liability, and federal circuit courts disagreed about when they must be in place before they can be used to tally a bill.

Anusha Rasalingam, a Friedman & Anspach partner who represents pension funds, praised the ruling.

“It is reassuring to see that the Supreme Court has unanimously recognized the unique expertise of actuaries to use their professional judgment and experience to set actuarial assumptions that are appropriate for the plans they advise,” Rasalingam said. “Of particular note is that in her opinion, Justice Jackson noted that actuarial assumptions are not data points, but rather a reflection of the plan actuary’s best estimate of future anticipated experience.”

ERISA’s text “required this result,” she added.

Greg Ossi, a partner with Norton Rose Fulbright US LLP who represents employers in disputes with pension funds, said he was “disappointed but not surprised” by the decision. He pointed out that the court still recognized limits on actuaries’ discretion, including the requirement that they use their “best estimate” when calculating a plan’s unfunded vested benefits.

Circuit Split

The interest rate assumptions used to calculate withdrawal liability can have a huge impact on an employer’s ultimate bill. Changes in these rates have the potential to swing an employer’s bill by tens of millions of dollars, Ossi said.

In this case, the US Court of Appeals for the D.C. Circuit allowed the actuary for a machinists’ union pension fund to calculate an employer’s liability using assumptions adopted after the “measurement date,” which is typically the end of the plan year preceding the employer’s withdrawal. This change increased M&K Employee Solutions LLC’s bill from about $1.8 million to more than $6 million.

But those assumptions must be “based on the body of knowledge available up to the measurement date,” the appeals court said, creating a split with the Second Circuit, which ruled in 2020 that liability must be calculated using the assumptions that are actually in effect on the measurement date.

M&K asked the Supreme Court to step in, arguing that limits on pension actuary discretion are baked into the relevant statutory text and necessary to avoid massive uncertainty and wild swings in liability. The US Solicitor General advised the court to take the case, backing a rule that would give actuaries flexibility to use later-adopted assumptions that reflect the state of the world on the relevant measurement date.

Tools, Not Inputs

The justices sided with the pension fund, reasoning that the actuarial assumptions underlying these calculations are “tools” aimed at making “predictive judgments about a plan’s anticipated future performance,” rather than “factual inputs” that are frozen in time.

These assumptions should “reflect the actuary’s knowledge as of the measurement date,” the court said. “But the relevant information about the plan’s performance or macroeconomic conditions, as it stood on the measurement date, may not become available until after the measurement date.”

Setting a hard deadline for these assumptions would create an “incoherent statutory scheme” in which actuaries must value a plan’s unfunded vested benefits “based on hard data as it stood on the measurement date while at the same time applying assumptions selected based on an older set of facts,” the court said.

Jackson’s opinion “does a nice job” explaining why these assumptions don’t necessarily need to be in place on the measurement date, said Sasha Gillin, a Segal Roitman LLP partner who represents unions and benefit funds.

“The whole point of withdrawal liability is to assure that pension plans do not become insolvent when employers withdraw, and the reason actuaries perform the task of calculating withdrawal liability is because calculating UVBs in today’s dollars necessarily requires certain predictions about the likely performance of the plan and future economic conditions,” Gillin said. “The predictive assumptions used by the actuaries change over time to reflect changing conditions.”

John E. Roberts, the Proskauer Rose LLP partner who argued on behalf of the IAM National Pension Fund, also praised the decision.

“We are pleased that the Court recognized what actuaries and pension plans have understood for decades—that ERISA permits actuaries to select assumptions after the end of a plan year to ensure that withdrawal liability calculations most accurately reflect a plan’s condition,” Proskauer’s Roberts said. “The Court’s unanimous decision preserves the integrity of the withdrawal-liability framework Congress enacted and brings needed clarity and uniformity to an issue of substantial importance to multiemployer pension plans.”

Morgan, Lewis & Bockius LLP partner Michael E. Kenneally, who argued on behalf of M&K, declined to comment.

Policy Considerations

M&K argued that giving actuaries this flexibility would open the door to manipulation and inflated bills, but the company’s preferred approach “does nothing to address these concerns,” the Supreme Court said.

“Plans and actuaries could still select assumptions with an eye towards inflating withdrawal liability before the measurement date given the significant discretion they enjoy in selecting assumptions,” Jackson wrote for the court, adding that employers can challenge potentially unfair calculations in arbitration.

The justices also noted that Congress included deadlines for setting assumptions in other parts of federal pension law, but not the rules governing withdrawal liability calculations.

“We presume this omission is intentional,” Jackson said in the opinion.

The case is M&K Emp. Sols., LLC v. Trs. of IAM Nat’l Pension Fund, U.S., No. 23-1209, 5/21/26.