District Court Upholds Use of Segal Blend to Calculate Multiemployer Pension Liability

The U.S. District Court for the District of New Jersey has ruled in a multiemployer pension fund case brought by Manhattan Ford Lincoln against UAW Local 259 Pension Fund, pursuant to the Employee Retirement Income Security Act of 1974 (ERISA), as amended by the Multiemployer Pension Plan Amendment Act of 1980 (MPPAA).

As explained in the text of the decision, this litigation arose from Manhattan Ford Lincoln’s withdrawal from the pension fund, an ERISA-covered multiemployer pension plan. Following a string of challenges during the arbitration process, the arbitrator ultimately upheld the pension fund’s calculation of about $2.55 million in withdrawal liability, leading to the filing of this lawsuit, in which the employer argued its proper liability (i.e., as calculated with the same discount rate used to set minimum funding requirements) should be much closer to zero, if not wholly null. 

Specifically, Manhattan Ford Lincoln challenged the pension fund and the arbitrator’s conclusions by raising two essential questions, stated in the text of the decision as follows: “(1) As a matter of ERISA law, must a pension plan’s actuary use identical actuarial assumptions to calculate the plan’s satisfaction of minimum funding requirements and its unfunded vested benefits (UVB) for withdrawal liability? 2) Assuming the answer to question 1 is ‘no,’ did the arbitrator err in this case when he found that the discount rate applied by the pension fund’s actuary to determine Manhattan Ford Lincoln’s withdrawal liability, the Segal Blend, did not render the actuarial assumptions ‘in the aggregate, unreasonable (taking into account the experience of the plan and reasonable expectations)’?”

These questions were coded into Manhattan Ford Lincoln’s motion for summary judgment and the pension fund’s cross-motion for summary judgment. In short, the decision answers the two questions raised flatly in the negative. Accordingly, the employer’s motion for summary judgment is denied, and the pension fund’s cross-motion for summary judgment is granted. Thus, the district court has also affirmed the arbitrator’s interim and final awards.

For its part, Segal Consulting has a few things to say about the ruling. It argues that this latest court decision “affirms use of the Segal Blend to calculate withdrawal liability.”

In a statement from Diane Gleave, senior vice president and actuary, and David Brenner, senior vice president and national director of multiemployer consulting, the pair explain how the withdrawing employer had argued (inappropriately in their view) that funding assumptions should have been used for the liability calculation.

“The actuary used what is commonly referred to as Segal Blend method, which involves two separate liability calculations blended to form the final result,” the pair explain. “The Segal Blend method more accurately reflects that the withdrawing employer is making a final settlement of obligations and includes a risk premium payment as part of that settlement. An arbitrator found that the use of funding assumptions is not required in calculating withdrawal liability. The court concluded use of the Segal Blend method by the pension fund’s actuary was appropriate.”

“It’s significant that the court granted the pension fund’s motion for summary judgement,” Brenner adds. “That means the judge concluded that there were no triable issues or facts raised by the withdrawing employer.”

Gleave adds that the decision “is consistent with every other decision handed down in similar cases except for one,” the Southern District of New York Court’s decision in The New York Times Company v. Newspaper and Mail Deliverers’-Publishers’ Pension Fund, which is being appealed.

Turning back to the text of the lawsuit, it is important to note how the decision was reached. As the judge explains, the arbitrator’s determination that ERISA and precedent-setting cases do not always require the use of the same discount rate for funding and withdrawal liability calculations “presents a pure conclusion of law.” Thus the question was reviewed de novo. On the other hand, the arbitrator’s determination that the use of the Segal Blend rate was reasonable, when considered “in the aggregate” with the other actuarial methods and assumptions, presents a mixed question of law and fact. Thus the court “reviewed the arbitrator’s interpretations of the law embedded within that determination de novo, but applied a ‘clearly erroneous’ standard to the arbitrator’s application of that legal standard to reach his findings of fact.”

Summarizing his conclusion, the judge writes the he “agrees with the arbitrator that an actuary’s use of distinct rates to calculate minimum contribution and withdrawal liability is not prohibited as a matter of law.”

“Additionally, after reviewing the arbitrator’s final award and the record as a whole, I uphold the arbitrator’s finding that Manhattan Ford failed to discharge its burden of demonstrating that the actuary’s selection of the Segal Blend rate for purposes of withdrawal liability was unreasonable,” the judge concludes.

The full text of the lawsuit, which includes substantial discussion on all these issues, is available here.