The United States Supreme Court is set to address a pivotal issue in the world of multiemployer pension plans. In M&K Employee Solutions, LLC v. Trustees of the IAM National Pension Fund, the Court will determine whether pension plans can use actuarial assumptions adopted after an employer’s withdrawal to calculate withdrawal liability. This decision could have far-reaching implications for employers, plan sponsors, and actuaries alike, as it seeks to resolve a split between federal appellate courts. Here’s what you need to know about this case and its potential impact on the multiemployer pension plan landscape.
Withdrawal liability is a critical concept under the Multiemployer Pension Plan Amendments Act (MPPAA). When an employer withdraws from a multiemployer pension plan, it may be required to pay its share of the plan’s unfunded vested benefits. These liabilities are calculated based on actuarial assumptions, which can significantly influence the final amount owed. Even small changes in assumptions, such as the discount rate, can lead to dramatic differences in liability calculations.
The central question in M&K is whether these actuarial assumptions must be locked in as of the “Measurement Date” (the end of the plan year preceding the withdrawal) or whether plans can retroactively apply new assumptions adopted after that date. The answer could reshape how plans approach assumption-setting and how employers plan for potential withdrawal liability.
Under ERISA Section 4211, withdrawal liability is calculated based on the plan’s unfunded vested benefits “as of the end of the plan year” preceding the withdrawal. However, courts have disagreed on whether this means actuarial assumptions must also be finalized by that date. The Second Circuit, in National Retirement Fund v. Metz Culinary Management, held that only assumptions in effect on the Measurement Date can be used. The D.C. Circuit, in contrast, ruled in M&K Employee Solutions that assumptions adopted after the Measurement Date are permissible, as long as they rely on data available as of that date.
This split has created uncertainty for plans and employers, making the Supreme Court’s review highly anticipated.
The M&K case illustrates the stakes of this legal debate. M&K withdrew from the IAM National Pension Fund in 2018, making December 31, 2017, the Measurement Date. At that time, the plan’s actuary used a 7.5% discount rate. However, after the Measurement Date, the actuary adopted a 6.5% discount rate, which significantly increased the plan’s unfunded vested benefits and, consequently, M&K’s withdrawal liability—by more than 600%.
M&K argued that only the 7.5% rate in effect on the Measurement Date should apply. While an arbitrator agreed, both the U.S. District Court and the D.C. Circuit sided with the plan, reasoning that retroactive application of new assumptions is consistent with ERISA’s goal of protecting plan assets and participants.
The Supreme Court’s decision could go one of two ways: If the Court sides with the Second Circuit, plans will need to ensure that all actuarial assumptions are formally adopted by the Measurement Date. This would provide greater predictability for employers and reduce the risk of disputes over retroactive changes. It could also enhance transparency in corporate planning, restructuring, and collective bargaining. If the Court affirms the D.C. Circuit’s position, plans would retain flexibility to adopt new assumptions after the Measurement Date, as long as they are based on data available at that time. While this approach allows plans to respond to changing market conditions, it could also lead to more disputes, particularly if employers view retroactive changes as unfair.
So what should Plan Sponsors and Employers do now? While the Supreme Court deliberates, there are steps that plan sponsors and employers can take to prepare.
- Review Assumption-Setting Procedures: Plan sponsors should work closely with their actuaries to ensure that assumption-setting processes are well-documented and transparent. This can help mitigate legal risks and build trust with contributing employers.
- Communicate Clearly with Employers: Transparency is key. Employers should be informed about the potential for assumption changes and how these changes could impact withdrawal liability estimates.
- Stay Informed: The Supreme Court’s decision will provide much-needed clarity on this issue. Until then, plans should be prepared to defend their assumption-setting decisions in arbitration or litigation.
The Supreme Court’s ruling in M&K Employee Solutions will have significant implications for multiemployer pension plans and the employers who contribute to them. Whether the Court prioritizes predictability or flexibility, the decision will shape how withdrawal liability is calculated and communicated for years to come. Stay tuned for updates as this important case unfolds.