Emps.' Ret. Plan of Nat'l Educ. Ass'n v. Clark Cnty. Educ. Ass'n

664 F.Supp.3d 24

EMPLOYEES' RETIREMENT PLAN OF the NATIONAL EDUCATION ASSOCIATION,and Retirement Board of the Employees' Retirement Plan of the National Education Association of the United States, Plaintiffs, v. CLARK COUNTY EDUCATION ASSOCIATION, Defendant.

Civil Action No. 20-3443 (RDM)

United States District Court, District of Columbia

Signed February 27, 2023

Lauren Powell McDermott, Paul Andrew Green, Olga Metelitsa Thall, Mooney, Green, Saindon, Murphy & Welch, P.C., Washington, DC, for Plaintiffs.

Arlus Jeremiah Stephens, Murphy Anderson PLLC, Washington, DC, Elizabeth Gropman, Pro Hac Vice, Shawn C. Groff, Pro Hac Vice, Leonard Carder, LLP, Oakland, CA, Peter W. Saltzman, Pro Hac Vice, Leonard Carder, LLP, San Francisco, CA, for Defendant.

MEMORANDUM OPINION

RANDOLPH D. MOSS, United States District Judge

Plaintiff the Employees' Retirement Plan of the National Education Association of the United States ("the Plan") is a multiemployer pension plan. Joint Appendix ("J.A.") 4805.¹ Defendant the Clark County Education Association ("CCEA") is a labor organization that for years was a contributing employer to the Plan. J.A. 4806. CCEA withdrew from the Plan in 2018, at which point the Plan assessed $3,246,349 in "withdrawal liability" against it. J.A. 188. CCEA challenged this assessment in arbitration and for the most part prevailed. The arbitrator concluded, among other things, that the actuarial assumptions that the Plan used to calculate CCEA's withdrawal liability were unreasonable in the aggregate because one crucial assumption, the discount rate (5.0%), was itself unreasonable. J.A. 6325-26 (Award at 2-3). So he ordered the Plan to recalculate CCEA's withdrawal liability using a different discount rate (7.3%). Id.

The Plan now asks this Court to vacate or modify most of that arbitration award, while CCEA asks the Court to enforce it in full. The Court agrees with CCEA and the arbitrator that the Plan's assessment of CCEA's withdrawal liability cannot stand, although it reaches that result for different reasons than did the arbitrator. But, based on the arbitrator's award, the Court cannot determine whether the remedy the arbitrator imposed was permissible. It will therefore remand the case to the arbitrator to reconsider the remedy. Because the Court denies the relief that the Plan seeks but grants only a portion of the relief CCEA seeks, the Court will GRANT in part and DENY in part the Plan's motion for summary judgment, Dkt. 24, GRANT in part and DENY in part CCEA's cross-motion for summary judgment, Dkt. 26, and AFFIRM the arbitration award in part and VACATE it in part.

I.

The Court begins by reviewing the relevant statutory, factual, and procedural background.

A.

In a multiemployer pension plan, multiple employers make financial contributions to the same general trust fund, and the money in that fund is used to provide for the pensions of the various employers' employees. 29 U.S.C. § 1002(37); see Concrete Pipe & Prods. Of Cal., Inc. v. Constr. Laborers Pension Tr. for S. Cal., 508 U.S. 602, 605-06, 113 S.Ct. 2264, 124 L.Ed.2d 539 (1993). These plans are maintained in accordance with collective bargaining agreements between the employers and a union and are governed by the provisions of ERISA. United Mine Workers of Am. 1974 Pension Plan v. Energy West Mining Co., 39 F.4th 730, 734 (D.C. Cir. 2022). Among other things, ERISA requires employers participating in multiemployer plans to "contribute annually to the plan whatever is needed to ensure that it has enough assets to pay for the employees' vested pension benefits when they retire." Id.

To estimate its annual funding needs, a plan makes assumptions about the relative rates at which its assets and liabilities will grow. See Wachtell, Lipton, Rosen & Katz v. Comm'r, 26 F.3d 291, 293-94 (2d. Cir. 1994). A key assumption in this analysis is the "funding rate:" the estimated annual rate of return the plan's assets will earn. Chicago Truck Drivers Union v. CPC Logistics, Inc., 698 F.3d 346, 353-54 (7th Cir. 2012). A higher funding rate represents a faster assumed rate of growth for the plan's assets and thus, all other things equal, necessitates lower ongoing contributions from participating employers. Id. at 355. A lower funding rate, conversely, represents a lower estimated growth rate of the plan's assets and thus, all other things equal, necessitates higher participant contributions. Id.

An employer who participates in a multiemployer plan is free to withdraw from the plan and to terminate its obligation to make annual contributions. 29 U.S.C. § 1383. But an employer's withdrawal does not divest any worker enrolled in the plan of the pension benefits he or she has earned; the plan and its remaining contributors must still provide for the vested pension benefits of all its participants. See Energy West, 39 F.4th at 734-35 & n.2. This structure can create perverse incentives: If a plan's funding begins to lag—say, because a market downturn decreases the value of its assets—participating employers will be required to make larger annual contributions in order to comply with ERISA. Milwaukee Brewery Workers' Pension Plan v. Jos. Schlitz Brewing Co., 513 U.S. 414, 416-17, 115 S.Ct. 981, 130 L.Ed.2d 932 (1995). And as required annual contributions grow, so too does the incentive for participating employers to withdraw. Id. Withdrawals further exacerbate funding shortfalls, and a shortfall-withdrawal-shortfall cascade can send a plan into a "death spiral." Energy West, 39 F.4th at 734. Although ERISA created a federally chartered insurance corporation, the Pension Benefit Guaranty Corporation ("PBGC"), to backstop troubled pension plans and to head off death spirals, 29 U.S.C. § 1302, in practice, the existence of this safety net only further encouraged withdrawals and threatened to stretch the PBGC's obligations beyond its means, see Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 214-15, 106 S.Ct. 1018, 89 L.Ed.2d 166 (1986).

Congress enacted the Multiemployer Pension Plan Amendments Act of 1980 (the "MPPAA"), Pub. L. 96-364, 94 Stat. 1208, to address this problem. To ensure that employers pay their fair share (and to discourage strategic withdrawals), the MPPAA requires withdrawing employers to pay for the privilege. 29 U.S.C. § 1381. Under the MPPAA, an employer that withdraws from a multiemployer plan must pay "its pro rata share of the pension plan's funding shortfall," also known as its withdrawal liability. CPC Logistics, 698 F.3d at 347; 29 U.S.C. § 1383(a), (b). More specifically, "withdrawal liability" is imposed based on "the employer's proportionate share of the plan's 'unfunded vested benefits,' calculated as the difference between the present value of the vested benefits and the current value of the plan's assets." Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 725, 104 S.Ct. 2709, 81 L.Ed.2d 601 (1984) (quoting 29 U.S.C. §§ 1381, 1391); see 29 U.S.C. § 1393(c).

Withdrawal liability is a function of both known variables and indeterminate assumptions. For instance, when calculating withdrawal liability, a plan's actuary knows how many employees are enrolled in the plan and what benefits their pensions promise. But the actuary must estimate, among other things, how long these employees will work and how long they will live. Energy West, 39 F.4th at 735. The assumption with the greatest effect on the withdrawal liability bottom line is the rate at which the plan's assets will grow "by the miracle of compound interest"—that is, the discount rate. CPC Logistics, 698 F.3d at 348. As in the funding rate context, the higher the withdrawal liability discount rate, the faster the plan's assets are projected to grow on their own, and thus the smaller the present value of the plan's liabilities, the lower the funding shortfall, and the less a withdrawing employer's withdrawal liability. See id. And, conversely, the lower the discount rate, the slower the assets are assumed to grow, and thus the greater the present value of the plan's liabilities, and the more a withdrawing employer must pony up. See id. The MPPAA requires plans calculating withdrawal liability to use "actuarial assumptions and methods which, in the aggregate, are reasonable (taking into account the experience of the plan and reasonable expectations) and which, in combination, offer the actuary's best estimate of anticipated experience under the plan." 29 U.S.C. § 1393(a)(1).

Although withdrawal liability is paid over time, it is calculated only once, shortly after the employer's withdrawal. J.A. 6349 (Award at 26). This means that at the moment withdrawal liability is assessed, risk—upside and downside—shifts from the withdrawing employer to the plan and its remaining participants. See id. If the estimate of the withdrawing firm's liability is too low, the remaining employers will have to foot the bill for that shortfall and make sure that the withdrawing firm's employees (and other participants) still receive the pension benefits to which they are entitled. See id. By the same token, if the withdrawal liability assessment is too high, the plan can accrue the windfall, because the withdrawing employer has no way to recoup its overpayment. See id.

Withdrawal liability can be substantial, and, not surprisingly, plans and the employers who withdraw from them often disagree about which assumptions to use. If a withdrawing employer wants to dispute a plan's calculations, it must do so through arbitration in the first instance. 29 U.S.C. § 1401(a)(1). A plan's determination of withdrawal liability receives considerable deference in the arbitration process and is "presumed correct" by the arbitrator unless the withdrawing employer "shows by a preponderance of evidence" that either the actuarial "assumptions and methods" used were unreasonable "in the aggregate," "taking into account the experience of the plan and reasonable expectations," or that the plan's actuary ...