Trs. of IAM Nat'l Pension Fund v. M&K Emp. Sols., LLC

92 F.4th 316

TRUSTEES OF the IAM NATIONAL PENSION FUND, Appellee v. M & K EMPLOYEE SOLUTIONS, LLC, AppellantTrustees of the IAM National Pension Fund, Appellee v. Ohio Magnetics, Inc., et al., Appellants

No. 22-7157

Consolidated with No. 22-7158

No. 23-7028

United States Court of Appeals, District of Columbia Circuit

Argued December 11, 2023

Decided February 9, 2024

Appeal from the United States District Court for the District of Columbia (Nos. 1:21-cv-02152, 1:21-cv-00928)

Michael E. Kenneally and Donald J. Vogel argued the causes for appellant/cross-appellee. With them on the briefs was R. Jay Taylor Jr. James A. Eckhart entered an appearance.

John E. Roberts argued the cause for appellee/cross-appellant. With him on the brief were Lucas Kowalczyk and Neil V. Shah.

Michael J. Prame was on the brief for amici curiae The Segal Group, Inc., et al. in support of appellee.

Michael E. Kenneally and Donald J. Vogel argued the causes for appellants. With them on the briefs were Jonathan D. Janow, William P. Lewis, Stephen K. Dixon, Randall C. McGeorge, and Deborah S. Davidson.

John E. Roberts argued the cause for appellee. With him on the brief were Neil V. Shah and Lucas Kowalczyk.

Before: Rao, Walker and Childs, Circuit Judges.

Childs, Circuit Judge:

The Multiemployer Pension Plan Amendments Act ("MPPAA"), part of the Employee Retirement Income Security Act of 1974's ("ERISA") legal framework, requires an employer to pay "withdrawal liability" if it leaves a multiemployer pension plan ("MPP") under certain conditions. 29 U.S.C. §§ 1381, 1391; United Mine Workers of Am. 1974 Pension Plan v. Energy W. Mining Co., 39 F.4th 730, 733 (D.C. Cir. 2022), cert. denied, — U.S. —, 143 S. Ct. 1024, 215 L.Ed.2d 190 (2023). As the name suggests, in an MPP, multiple employers make financial contributions to the same trust fund for the purpose of providing employee pensions. See 29 U.S.C. § 1002. Withdrawal liability for employers withdrawing from underfunded MPPs is the amount of money the employer owes the plan. Calculating withdrawal liability requires an actuary to project the plan's future payments to pensioners. Germane to any financial projection, "this requires making assumptions about the future." Energy W., 39 F.4th at 734. The MPPAA requires the actuary to use "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).

M&K Employee Solutions, LLC - Alsip ("Alsip"), M&K Employee Solutions, LLC - Joliet ("Joliet"), and M&K Employee Solutions, LLC - Summit ("Summit") (collectively "M&K") and Ohio Magnetics, Inc. ("Ohio") were formerly contributing employers to the IAM National Pension Fund ("the Fund") and all withdrew during the 2018 plan year. The Fund assessed withdrawal liability for each entity based on actuarial assumptions by Cheiron, Inc. ("Cheiron"), an actuarial consulting firm. Trustees for the Fund filed separate suits against M&K and Ohio challenging arbitration awards in favor of both employers' withdrawal liability, as calculated by Cheiron. In both instances, the district court vacated the awards and remanded the case to the arbitrator for further proceedings consistent with the district court's findings. The Fund appealed.

Because these cases involve the same Fund, are based on a similar set of facts, and require this Court to address the same legal question, we write a single opinion to address both cases. The issue before us is whether an actuary may set actuarial assumptions for a given measurement date after the measurement date based on information that was available "as of" the measurement date.¹ We answer affirmatively and affirm both rulings of the district court.

I. BACKGROUND

The district court has provided an extensive explanation of the complicated litigation and background of the relationship between M&K, Ohio, and the Fund, as well as the circumstances underlying the employers' withdrawals.² See Trs. of IAM Nat'l Pension Fund v. Ohio Magnetics, Inc., 656 F. Supp. 3d 112, 117-22 (D.D.C. 2023); Trs. of IAM Nat'l Pension Fund v. M & K Emp. Sols., LLC, No. 1:21-CV-02152-RCL, 2022 WL 4534998, at *1-6 (D.D.C. Sept. 28, 2022). Additionally, this Court recently discussed ERISA, the MPPAA, and the process of calculating withdrawal liability using actuarial assumptions. See Energy W., 39 F.4th at 734-38. Therefore, we present a truncated review of the overall framework, followed by the background of the cases at hand.

Congress passed ERISA, 29 U.S.C. §§ 1001-1461, "[t]o ensure that employees who were promised a pension would actually receive it." Energy W., 39 F.4th at 734. An MPP is "maintained pursuant to a collective bargaining agreement between multiple employers and a union." Id.; 29 U.S.C. § 1002(37)(A) (defining MPPs). Unlike single-employer pension plans, operated for the benefit of a single employer, MPPs are designed to serve many different employers. These employers operate "mostly in industries where there are hundreds or thousands of small employers going in and out of business and where the nexus of the employment relationship is the union that represents employees who typically work for many of those employers over the course of their career." Energy W., 39 F.4th at 734 n.1. Like single-employer plans, MPPs must "meet minimum funding standards, which require employers to contribute annually to the plan whatever is needed to ensure it has enough assets to pay for the employees' vested pension benefits when they retire." Id. at 734; see Milwaukee Brewery Workers' Pension Plan v. Jos. Schlitz Brewing Co., 513 U.S. 414, 416, 115 S.Ct. 981, 130 L.Ed.2d 932 (1995). As initially enacted, ERISA served its purpose if a multiemployer plan was financially stable; however, if a plan became financially unstable, participants would be required to make large contributions to meet minimum funding standards. Energy W., 39 F.4th at 734. This incentivized employers to withdraw to escape liability, "precipitating a death spiral for the plan." Id. (citing Milwaukee Brewery, 513 U.S. at 416-17, 115 S.Ct. 981).

Congress amended ERISA in 1980 to address these issues with the passage of the MPPAA, codified at 29 U.S.C. §§ 1381-1461. Now, if an employer withdraws from an underfunded plan, the plan and its remaining employer contributors remain obligated to provide the vested benefits of all participants. To this end, the withdrawing contributor is assessed a withdrawal liability equal to its proportional share of unfunded pension benefits. The pension plan is responsible for initially determining an employer's withdrawal liability, as calculated by the plan's actuary. Id. § 1382(1). An actuary must calculate withdrawal liability using assumptions "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).

ERISA and the MPPAA provide a process to adjudicate disputes over withdrawal liability. If an employer wants to contest the plan's determination, it must first do so through arbitration. Id. § 1401(a)(1). In those and all subsequent proceedings, a plan's determination of unfunded vested benefits ("UVBs") "is presumed correct unless a party contesting the determination shows by a preponderance of evidence that" either "(i) the actuarial assumptions and methods used in the determination were, in the aggregate, unreasonable (taking into account the experience of the plan and reasonable expectations), or (ii) the plan's actuary made a significant error in applying the actuarial assumptions or methods." Id. § 1401(a)(3)(B). Following arbitration, any party may seek "to enforce, vacate, or modify the arbitrator's award" in the district court. Id. § 1401(b)(2). The court must apply a "presumption, rebuttable only by a clear preponderance of the evidence, that the findings of fact made by the arbitrator were correct." Id. § 1401(c).

A. The Fund

The Fund at hand is an MPP that provides retirement benefits to employees of employers who maintain collective bargaining agreements with the International Association of Machinists and Aerospace Workers, AFL-CIO (or with affiliated local and district lodges). Ohio Magnetics, Inc., 656 F. Supp. 3d at 119. The Fund, governed by a trust agreement, holds the plan's assets. J.A. 19. The trust agreement provides that the Fund's fiscal and ERISA plan year correspond to the calendar year, and that withdrawal liability shall be calculated using the methodology set forth in 29 U.S.C. § 1393(b).³ J.A. 20.

B. Plan Evaluation

In November 2017, Cheiron, the Fund's actuary, valued the Fund's 2016 Plan Year UVBs at $448,099,164. J.A. 21. To reach this result, it used a discount rate of 7.5%. J.A. 21.

On January 24, 2018, Cheiron met with the Fund's Board of Trustees to review assumptions and methods used in making actuarial valuation calculations.⁴ After that meeting, Cheiron changed various methods and assumptions used to calculate withdrawal liability for employers withdrawing from the Fund during the 2018 Plan Year. J.A. 117-118. Cheiron selected a discount rate⁵ assumption of 6.5%, a decrease from the previous 7.5% discount rate from the 2016 Plan Year valuation, and an administrative expense load of 4%. J.A. 118, 144. Additionally, it changed the method used to value the Plan's assets. J.A. 118.

As the district court noted, Cheiron did not include any assumption for the Fund's future administrative expenses, which are paid out of the Fund's assets and therefore contribute to the Plan's UVBs. Ohio Magnetics, Inc., 656 F. Supp. 3d at 119. The 2018 decrease in the discount rate would result in greater withdrawal liability for employers. Id. at 120.

C. M&K

For purposes of ERISA, M&K was considered a single...