In its upcoming term, the U.S. Supreme Court will decide when withdrawal liability assumptions must be adopted. The decision is expected to impact multiemployer pension plans and their contributing employers. Multiemployer pension fund trustees have a fiduciary responsibility to collect withdrawal liability assessments, and withdrawing employers are required to cover their share of the plan’s unfunded vested benefits (if any). Below is an overview of the main concepts and legal developments surrounding withdrawal liability assumptions.
What Is Withdrawal Liability?
In a multiemployer defined benefit pension plan with unfunded liability, withdrawal liability is the employer’s proportionate share of the entire plan’s underfunding for vested benefits. The amounts can be significant (i.e., millions of dollars).
Withdrawal liability is governed by the Employee Retirement Income Security Act of 1974 (ERISA) and the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA). Multiemployer pension fund trustees have a fiduciary responsibility to demand and collect withdrawal liability assessments. When an employer withdraws from a multiemployer plan, the trustees determine the amount of the employer’s withdrawal liability, notify the employer of the amount and collect it. Even if the employer was never delinquent in making contributions, it may be required to continue contributions in the form of withdrawal liability payments to cover its share of the pension plan’s unfunded vested benefits (UVBs).
What Triggers Withdrawal Liability?
When a collective bargaining agreement (CBA) binds an employer to contribute for its employees to a multiemployer pension plan and if the employer ceases contributions, then withdrawal liability is triggered. Examples of triggering events include an employer who didn’t sign a new CBA upon expiration of the old CBA, an employer who renews a CBA but negotiated out of the pension plan, an employer shuts its doors and goes out of business, or an employer liquidates its assets in bankruptcy.
When Is Withdrawal Liability Determined?
The pension fund determines the plan year in which an employer withdrawal is deemed to have occurred. The liability amount is based upon the fund’s financial position based on an actuary’s report “as of” the last day of the plan year prior to withdrawal. At issue in this litigation is whether a plan is required to base the calculation on the actuarial assumptions most recently adopted before the end of the year, or whether a plan is allowed to use different actuarial assumptions that were adopted after—but based on information available as of—the end of the year.
The selection of assumptions for withdrawal liability is an important issue because a lower interest assumption results in a higher value of liabilities and, thus, higher withdrawal liability.
How Is Withdrawal Liability Determined?
Withdrawal liability is complicated and technical. At a high level, determining an employer’s withdrawal liability starts with the actuary calculating the value of vested benefits of the fund participants, then comparing this to the value of the fund assets. Any shortfall in assets is considered underfunding and equals the value of UVBs.
Think of UVBs as a pie to be divided among all contributing employers. Without going in to the details of the allowable calculation methods, the concept is that each employer’s share of the UVB is based on its share of total contributions to the plan. For example, if an employer accounts for 2% of total plan contributions, its withdrawal liability will be about 2% of the UVB. The withdrawn employer’s “slice of the pie” is the withdrawal liability amount.
An employer has a right to challenge the liability assessed. The law assumes the plan assessment is correct unless the employer can show the assumptions and methods used were unreasonable or the actuary made an error in the calculations.
What Question Will the Supreme Court Consider?
In the case of M & K Employee Solutions, LLC v. Trustees of the IAM National Pension Fund, the question is whether the law’s instruction to compute withdrawal liability “as of the end of the plan year” requires the plan to base the computation on the actuarial assumptions most recently adopted before the end of the year, or if it allows the plan to use different actuarial assumptions that were adopted after—but based on information available as of—the end of the year.
Two Lower Court Decisions
IAM National Pension Fund | D.C. Circuit Court of Appeals
The pension fund assessed withdrawal liability against employers for a 2018 withdrawal from the plan. As of December 31, 2017 (the measurement date), the plan was using an interest rate of 7.5%. In January 2018, the plan’s actuary selected a new interest rate assumption of 6.5%—to be used retroactively. This change in the interest rate assumption caused the employers to be assessed a significantly higher withdrawal liability (in this example, $4.3 million higher).
The D.C. Circuit found that the plan actuary’s interest rate assumption may be changed retroactively after the measurement date, even if it is based on information received after the measurement date so long as the information is “as of” the measurement date.
National Retirement Fund | Second Circuit Court of Appeals
The pension fund assessed withdrawal liability against an employer for a 2014 withdrawal from the plan. The interest rate in effect on December 31, 2013 was 7.25%. In June 2014, the plan adopted an interest rate of 3.25%. This change in the interest rate assumption caused the employer to be assessed a withdrawal liability that was nearly four times higher.
In this case, National Retirement Fund v. Metz Culinary Management, Inc., the Second Circuit interpreted ERISA in accord with its language: The plan must calculate withdrawal as of the last day of the prior year, using the assumptions in effect on that day.
Supreme Court Is Poised to Resolve Split Decisions
When courts decide differently, it can cause uncertainty. In this case, the Supreme Court is expected to resolve the uncertainty.
In summary, the lower court split can be described as follows:
- The D.C. Circuit focused on the ERISA purpose of protecting the participants of multiemployer pension funds.
- The Second Circuit focused on the plain language of the statue.
Supreme Court Requested the Solicitor General’s Input
In deciding whether to take the case, the Supreme Court asked for the government’s opinion on the dispute. Solicitor General D. John Sauer represented himself, along with attorneys from the Department of Justice and the Pension Benefit Guaranty Corporation, in writing to the court that “ERISA permits an actuary to select its assumptions for purposes of determining withdrawal liability after the measurement date,” the solicitor’s brief said.
The solicitor general advised that the “case warranted immediate review because even relatively small changes in assumptions can affect withdrawal liability bills by millions of dollars and ‘the dueling rules’ can ‘open any determination of withdrawal liability to challenge,’” Israel Goldowitz wrote on the Wagner Law Group blog.
“The Solicitor General encouraged the Court to affirm the D.C. Circuit’s decision. The Solicitor General argued that actuarial assumptions are not plan rules or amendments subject to the prohibition on retroactive application and should not be treated similarly. Further, the Solicitor General explained that the Second Circuit’s concern regarding manipulation and bias was overstated,” according to David Rogers and Regan S. Rusher’s blog at Winston & Strawn LLP.
Next Steps
Now that the Supreme Court has decided to hear the case of M & K Employee Solutions, LLC v. Trustees of the IAM National Pension Fund by granting certiorari, the next steps are for the parties to file their briefs on the merits. The petitioners’ (employers’) brief on the merits is due August 28, 2025. The respondents’ (pension funds’) brief on the merits is due October 14, 2025. Go to the Supreme Court Docket No. 23-1209 to see the documents filed in this case.
As of this writing, the Supreme Court hasn’t posted its oral argument schedule. It’s expected that an opinion will be released by the end of June 2026.
Visit the Trustee Resource Center Toolkit for all the latest updates.
Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.
