Sixth Circuit Vacates Withdrawal Liability Award for Redetermination of Interest Rate and Assessment of Partial-Withdrawal Liability

Sofco Erectors, Inc. v. Trustees of Ohio Operating Engineers Pension Fund, No. 20-3639, __F.4th__, 2021 WL 4434226 (6th Cir. Sept. 28, 2021) is a dispute involving the payment of withdrawal liability to a multiemployer pension plan under ERISA. After Sofco Erectors, Inc. terminated its collective bargaining agreement with a local union, the Ohio Operating Engineers Pension Fund (“Fund”) assessed over $800,000 in withdrawal liability against Sofco. Sofco challenged the assessment in arbitration, and the arbitrator upheld the assessment. The district court confirmed in part and reversed in part. The Sixth Circuit affirmed in part, reversed in part, and vacated in part.

The court decided several issues. First, the court held that the interest rate assumption the Fund used to calculate withdrawal liability was in error. The Fund’s actuary used a 7.25% growth rate on assets for minimum funding purposes but used the “Segal Blend” for withdrawal liability purposes. The Segal Blend takes the interest rate for minimum funding purposes and blends it with the PBGC’s published interest rates on annuities. The arbitrator upheld the use of the Segal Blend because it was reasonable. The Sixth Circuit disagreed. It found that use of the Segal Blend for withdrawal liability calculations violates 29 U.S.C. § 1393(a)(1) because it is not “the actuary’s best estimate of anticipated experience under the plan.”

Second, the court vacated the district court’s decision upholding the arbitrator’s decision which upheld the Fund’s actuary’s assessment of partial-withdrawal liability because the district court erred by relying on the § 1401(a)(3)(A) presumption to uphold the Fund’s determination. The court remanded for further proceedings on the legal question of what constitutes an “insubstantial portion.”

Third, the court found that the district court did not err by concluding that the Fund properly included forklift work in the withdrawal liability calculation because the CBA clearly establishes Local 18’s jurisdiction over forklift work and Softco’s obligations to contribute to the Fund for that work. But the district court erred in vacating the arbitrator’s determination that Sofco is liable for “shop work” since the CBA covers maintenance and repair work.

Fourth, the court found that the district court did not err when it upheld the arbitrator’s decision to include Old Sofco’s contribution history in its withdrawal liability calculation. “Sofco argues that this was error because when Sofco purchased Old Sofco’s assets in an arm’s-length transaction in 2004, it became a new, independent entity and did not assume any of Old Sofco’s liabilities.” The district court did not abuse its discretion when it applied the successor liability doctrine to the withdrawal liability calculation.

Lastly, the district court did not abuse its discretion in denying fees to both parties under 29 U.S.C. § 1451(e). “[T]his case involved complicated legal questions without clear answers. Each party prevailed on some issues. There is no evidence of bad faith from either party. Sofco was fully justified in exercising its right to challenge the Fund’s withdrawal-liability determination, as was the Fund in defending it. And neither parties’ positions were frivolous.”