Key Takeaways
- • The Supreme Court held in M&K Employee Solutions v. Trustees of the IAM National Pension Fund that multiemployer pension plan actuaries may use demographic and economic assumptions adopted after the ERISA measurement date, provided they rely only on data and conditions that existed on or before that date.
- • The dispute centered on a 6.5 percent interest rate adopted in January 2018 versus the 7.5 percent rate in effect at the end of 2017, which M&K said inflated the plan's unfunded vested benefits to more than $3 billion for the 2017 plan year.
- • M&K's withdrawal charge was $4,360,701; three other employers that exited the fund joined the lawsuit challenging how their unfunded vested benefits were valued.
- • Justice Ketanji Brown Jackson wrote that ERISA imposes no hard deadline for adopting actuarial assumptions and requires only that they be reasonable and reflect the actuary's best estimate.
- • Employers weighing withdrawal from multiemployer plans should note that the measurement date is fixed at the end of the prior plan year, but the assumptions used to value liability may be set later.
Summary
The Supreme Court has ruled in favor of the IAM National Pension Fund in M&K Employee Solutions v. Trustees of the IAM National Pension Fund, according to a summary published by Ogletree Deakins. The Court concluded that plan actuaries calculating withdrawal liability under the Employee Retirement Income Security Act (ERISA) may use actuarial assumptions adopted after the measurement date, which is the end of the plan year before withdrawal, so long as those assumptions rely only on data and conditions that existed on or before that date.
The case arose from M&K Employee Solutions' 2018 withdrawal from the fund, which primarily covers unionized machinists and aerospace workers. The fund's actuary applied a 6.5 percent interest rate adopted in January 2018, producing an underfunding figure above $3 billion for the 2017 plan year. M&K argued that the 7.5 percent rate in effect at the end of 2017 should have governed, which would have produced a figure roughly one-sixth of the amount calculated. The difference resulted in an additional charge of $4,360,701 for M&K. Three other employers in similar positions joined the suit.
M&K contended that ERISA requires the use of assumptions in effect on the measurement date. The trustees countered that ERISA imposes only two requirements on actuarial assumptions, that they be reasonable and represent the actuary's best estimate of anticipated experience under the plan, and that the statute sets no explicit timing rule. They argued actuaries should be able to use the most current and complete information available.
Writing for the Court, Justice Ketanji Brown Jackson agreed with the trustees. The opinion reasoned that relevant information about plan performance or macroeconomic conditions as of the measurement date may not become available until afterward, and that ERISA does not mandate a hard deadline for adopting assumptions. The Court stated that "ERISA does not require pension plans to assess withdrawal liability based on actuarial assumptions adopted before the measurement date."
Ogletree Deakins noted that the ruling does not eliminate the risk of inflated withdrawal liability assessments arising from later-adopted assumptions. Employers considering withdrawal may still benefit from knowing the data and conditions existing before the measurement date, and the firm's employee benefits and ERISA litigation groups said they will continue to monitor developments.
The case arose from M&K Employee Solutions' 2018 withdrawal from the fund, which primarily covers unionized machinists and aerospace workers. The fund's actuary applied a 6.5 percent interest rate adopted in January 2018, producing an underfunding figure above $3 billion for the 2017 plan year. M&K argued that the 7.5 percent rate in effect at the end of 2017 should have governed, which would have produced a figure roughly one-sixth of the amount calculated. The difference resulted in an additional charge of $4,360,701 for M&K. Three other employers in similar positions joined the suit.
M&K contended that ERISA requires the use of assumptions in effect on the measurement date. The trustees countered that ERISA imposes only two requirements on actuarial assumptions, that they be reasonable and represent the actuary's best estimate of anticipated experience under the plan, and that the statute sets no explicit timing rule. They argued actuaries should be able to use the most current and complete information available.
Writing for the Court, Justice Ketanji Brown Jackson agreed with the trustees. The opinion reasoned that relevant information about plan performance or macroeconomic conditions as of the measurement date may not become available until afterward, and that ERISA does not mandate a hard deadline for adopting assumptions. The Court stated that "ERISA does not require pension plans to assess withdrawal liability based on actuarial assumptions adopted before the measurement date."
Ogletree Deakins noted that the ruling does not eliminate the risk of inflated withdrawal liability assessments arising from later-adopted assumptions. Employers considering withdrawal may still benefit from knowing the data and conditions existing before the measurement date, and the firm's employee benefits and ERISA litigation groups said they will continue to monitor developments.
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