PBGC Announces Proposed Rule on Interest Rate Assumptions for Multiemployer Plan Withdrawal Liability

On October 14, 2022, the Pension Benefit Guaranty Corporation (PBGC) proposed a new regulation under ERISA Section 4213(a)(2) setting forth actuarial assumptions that a multiemployer pension plan may use in calculating an employer’s withdrawal liability. A PDF of the proposed rule can be found here.

Background on Withdrawal Liability

Under ERISA § 4213(c), an employer withdrawing from a multiemployer pension plan must pay the plan its proportional share of the plan’s unfunded vested benefits, which is the difference between the present value of the plan’s nonforfeitable vested benefits and the value of the plan’s assets. The plan’s actuary must employ a variety of assumptions to calculate the withdrawing employer’s liability, such as how long employees will work and how long retirees will live (both of which affect the value of the benefits the plan must pay in the future).

The most significant assumption the plan’s actuary employs in calculating withdrawal liability is the “discount rate” applied to the plan’s assets, meaning the rate at which the actuary assumes investments in which the plan’s assets are invested will perform in the future. A low discount rate assumes that the plan’s investments will perform less favorably than a higher discount rate, which increases the withdrawing employer’s liability, because it assumes that the value of the plan’s assets relative to the plan’s liabilities will be lower.

Background on Actuarial Assumptions

The PBGC has always been authorized to issue regulations regarding the permissible actuarial assumptions a plan may employ in calculating a withdrawing employer’s withdrawal liability under ERISA § 4213(a), but has never done so until now. In the absence of PBGC regulation, plan actuaries are required to rely on “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.”

That standard has resulted in litigation over the use of actuarial assumptions that artificially inflate an employer’s withdrawal liability (by, for example, employing a risk-free discount rate that is inconsistent with the plan’s actual historical investment performance). See, e.g., United Mine Workers of Am. 1974 Pension Plan v. Energy West Mining Co., 39 F.4th 730 (D.C. Cir. 2022); Sofco Erectors, Inc. v. Trs. of Ohio Operating Eng’rs Pension Fund, 15 F.4th 407 (6th Cir. 2021).

Proposed Rule

The proposed regulation does not prescribe any required discount rate, even though the PBGC would be authorized to do so. Instead, it “clarifies” that plan actuaries may employ a discount rate between (1) the settlement (mass withdrawal) rate; and (2) the minimum funding rate. In other words, the proposed rule codifies the historical practices of auditors that the PBGC observed prior to publishing the proposed rule.

The PBGC expects the proposed rule to reduce litigation risk for multiemployer pension plans by encouraging more plans to employ the mass withdrawal rates, “which would tend to increase withdrawal liability and a plan’s collection of withdrawal liability assessments.” 87 Fed. Reg. 62319. Employers may desire to review their participation in any multiemployer pension plans and determine whether to exit such plans before the rule is finalized and their exposure to withdrawal liability likely increases.

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About Author: Gregory Ossi

Gregory Ossi resolves labor law issues and ERISA-related litigation matters for clients in the energy production, mining, government contracting, hospitality, manufacturing and construction industries. Greg counsels employers on a broad range of labor and employee benefits matters, such as collective bargaining, mergers and acquisitions, union organizing and retiree health care with an emphasis on multiemployer pension withdrawal liability. He also has extensive experience negotiating retirement and health care plans pursuant to collective bargaining agreements. View all posts by and

About Author: Emily Kile-Maxwell

Emily Kile-Maxwell litigates complex commercial and employee benefits (ERISA) disputes through all phases of litigation, including on appeal. Emily represents commercial clients, benefit plans and plan fiduciaries, third-party administrators, and insurance companies in disputes and litigation, and also advises clients on benefit claim administration, plan administration and plan design. View all posts by and

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