For employers that withdraw from a multiemployer pension plan, it is now very common that they encounter withdrawal liability.  Challenging withdrawal liability requires undertaking a very specific procedural process and it is generally weighted in favor of the plan.  One of the primary problems with challenging a withdrawal liability determination is that the assumptions used by the fund (or more specifically, the fund actuary) need only be reasonable.  What is "reasonable" can be a tricky question.  But at least one Court has determined that "reasonable" should at least mean "consistent." 

Earlier this month, the Seventh Circuit Court of Appeals looked at the case of Chicago Truck Drivers Helpers and Warehouse Workers Union (Independent) Pension Fund v. CPC Logistics Inc.  The Appeals Court affirmed the District Court's affirmation of an arbitrator's decision that the fund had over-allocated withdrawal liability to CPC as a withdrawing employer.

 When CPC withdrew from the Fund, it was allocated withdrawal liability and challenged that allocation.  The matter went to arbitration and the arbitrator was asked to consider the assumptions used by the Fund when allocating liability.  As it turned out the actuary used two different sets of assumptions, one for calculating withdrawal liability, and the other for determining the annual minimum funding obligation of the the plan.  While the formulas may be different, both formulas use an interest rate assumption and, in this case, the actuary used two different interest rate assumptions.  The rate assumption used to calculate withdrawal liability resulted in a higher allocation that it would have if the lower funding assumption rate was used.  The Court said that because ERISA requires that the computation of withdrawal liability be based on the actuary’s best estimate and reasonable assumptions, using two rates for two different calculations seemed "unreasonable."

This not to suggest that all withdrawal liability calculations should immediately be challenged or that it would always be unreasonable to use two different interest rate assumptions.  But as withdrawal liability becomes a more common problem in the multiemployer world, it is important for both plan trustees and participating employers to be aware of this "reasonable" requirement.  Defending a claim for withdrawal liability is often as complex as calculating with withdrawal liability in the first place, but, based on this decision, it appears that the consistency in interest rates the plan uses in its formulas is something that should be considered.