For decades, The Bennett Law Firm has counseled vehemently against our clients participating in multiemployer pensions plans for myriad reasons including the financial risks associated with their underfunding. An employer participating in a multiemployer pension plan triggers underfunded withdrawal liability when the participating employer withdraws from a plan such as upon the sale of a company. In essence, withdrawal liability requires the employer to fund its share of a plan’s unfunded vested benefits. Historically, underfunding has been caused by various reasons such as poor investment returns, insolvency of other participating employers, intentional underfunding, and fraud.
Employers that participate in such plans have the ability to request a calculation of withdrawal liability which is common when companies are being sold. The plan administrator bases this calculation on the plan’s unfunded vested benefits as of the plan’s most recent year-end date. The calculation depends heavily on an actuarial assumption known as the discount rate. Buyers and sellers of businesses have routinely relied on these calculations when negotiating deals where withdrawal liability was an issue.
On May 21, 2026, the United States Supreme Court added a wrinkle to the calculation of withdrawal liability. While an employer may still obtain a withdrawal liability calculation based on the prior plan year-end date, the actuarial assumptions now are subject to change after the plan’s year-end date.
In M & K Employee Solutions, LLC, et al. v. Trustees of the IAM National Pension Fund, the Supreme Court held that the actuarial assumptions used to determine withdrawal liability can be determined after the last day of the plan year preceding the withdrawal. With this decision comes the very real possibility that plans will apply lower discount rates which translates to increased withdrawal liability.
In M & K, several participating employers withdrew during 2018 from the IAM National Pension Fund. The actuarial assumptions that were in place on the last day of the prior plan year, December 31, 2017, included a 7.5% discount rate. In early 2018, and prior to the withdrawals, the Pension Fund’s trustees in consultation with their actuary “settled on a discount rate of 6.5%” for the Pension Fund year ending on December 31, 2017, however the actuary did not publish its valuation until April 2019. The 1% reduction in the discount rate resulted in a sixfold increase in the Pension Fund’s unfunded vested benefits. To place this in context, one of the withdrawing employers saw its withdrawal liability increase from $1.8 million to $6.2 million because of this change.
The withdrawing employers arbitrated the discount rate issue and won at least initially. The arbitrators found that the 7.5% discount rate in effect on December 31, 2017, established the withdrawal liability. The Pension Fund then sued to challenge the arbitration awards and this case was appealed to the Supreme Court. The bottom line is that the Supreme Court settled this issue by declaring that the Pension Fund can select its interest rate assumption after the measurement date which in this case meant the imposition of the 6.5% discount rate. The Court held that while ERISA requires that actuarial assumptions be reasonable, ERISA provides no timing deadline.
Obviously, the risk of interest rate fluctuations cuts both ways and in some instances will be to the withdrawing employer’s favor. The problem for participating employers is that this decision strips a layer of predictability from deal making which involves a multiemployer pension plan. The takeaway is that employers need to view withdrawal liability as an even greater risk because of the impact of factors that can be determined after the measurement date. The assumptions at year end are no longer guaranteed to govern the ultimate withdrawal liability.
Any buyer or seller of a business that involves a multiemployer pension plan is well advised to engage qualified counsel early in the process.