In Dispute Over Withdrawal Liability, D.C. Circuit Holds Actuary May Base Assumption on Information After Measurement Date

In Trustees of IAM Nat’l Pension Fund v. M & K Emp. Sols., LLC, No. 22-7157, __F.4th__, 2024 WL 501826 (D.C. Cir. Feb. 9, 2024), the D.C. Circuit decided a several-year long dispute over withdrawal liability between the IAM National Pension Fund (“the Fund”) and M&K Employee Solutions, LLC – Alsip (“Alsip”), M&K Employee Solutions, LLC – Joliet (“Joliet”), and M&K Employee Solutions, LLC – Summit (“Summit”) (collectively “M&K”) and Ohio Magnetics, Inc. (“Ohio”), formerly contributing employers who withdrew from the Fund during the 2018 plan year. The court concluded that an actuary may set actuarial assumptions for a given measurement date after the measurement date based on information that was available “as of” the measurement date.

Cheiron, the Fund’s actuary, changed the methods and assumptions used to calculate withdrawal liability for employers withdrawing from the Fund during the 2018 Plan Year. The changes to the discount rate and administrative expense load resulted in greater liability for employers. M&K partially withdrew from the Fund in March and July 2017, and completely withdrew during the 2018 plan year. Similarly, Ohio withdrew from the Fund as of June 30, 2018. The Fund assessed 2018 withdrawal liability against both employers using its new actuarial assumptions for the 2018 plan year.

With respect to M&K, the district court held that 29 U.S.C. §§ 1391, 1393(a)(1) are best “read to allow later adoption of actuarial assumptions, so long as those assumptions are ‘as of’ the measurement date—that is, the assumptions must be based on the body of knowledge available up to the measurement date.” The district court also held that M&K was entitled to the free-look exception because “it had (1) a ‘complete or partial withdrawal’ and (2) ‘an obligation to contribute to the plan for no more than’ five years.” With respect to Ohio, the district court held that an actuary could set employer withdrawal liability assumptions after the year-end measurement date, but only based on information available as of that date.

The D.C. Circuit held that the district courts correctly found that the arbitrator erred in concluding that an actuary must use “the assumptions and methods in effect” on the relevant measurement date when calculating withdrawal liability. “When adopting actuarial assumptions, an actuary may base their assumption on information after the measurement date ‘so long as those assumptions are ‘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 explained that the MPPAA’s text reflects a balance struck by Congress between the competing considerations of actuarial flexibility and fairness to employers, and it is not for this Court to rewrite that legislative balance. With respect to M&K, the court agreed with the district court that the arbitrator erred as a matter of law in determining that M&K was not entitled to the free-look exception. “If a plan elects to allow a free-look exception, an employer may contribute to a plan for an initial specified period and then subsequently withdraw without incurring liability.”