Justices dubious about forcing actuaries to use out-of-date assumptions in assessing costs of leaving a multiemployer pension plan

Tuesday’s argument in M&K Employee Solutions v Trustees of the IAM National Pension Fund showed a bench skeptical of forcing actuaries to use out-of-date assumptions when they work on pension plans.

The case involves a particular type of pension arrangement in which a group of employers in the same industry band together to form a multiemployer pension plan, typically pursuant to a collective bargaining agreement under which they have agreed to provide specifically defined benefits. That type of plan differs markedly from a defined-contribution plan, which is much more common now, largely because it is much less risky for the employer.

One problem with defined-benefit plans comes when the outgoing benefits turn out to cost more than expected, which is not that rare given how hard it is to predict how long employees will live and how much health care will cost decades in the future. In the multiemployer context, things are made even more complicated when an employer leaves, so that the remaining employers continue to be obligated for all the covered employees. Congress has responded by requiring the departing employer to pay what an actuary calculates as the departing employer’s share of any shortfall, calculated “as of” the last day of the year before the employer withdraws.

The departing company and the fund in this case fell into litigation because after the valuation date – the last day of 2017 in this case – the actuaries changed their views as to the assumptions they were using about future performance and obligations of the plan. The departing employer liked the assumptions the actuary had used the previous year; the fund liked the new assumptions.

The justices as a group were skeptical of the argument of Michael Kenneally (for the departing company) that calculating the withdrawal liability “as of” the valuation date requires the actuary to use out-of-date assumptions.

Justice Brett Kavanaugh, for example, asked what would happen “if a major economic shock altered the return profile of the plan’s assets before the measurement date.” He seemed to think it strange that the statute “would prohibit the plan’s actuary from considering those events” when it calculated the liability of the departing employer, primarily because it was “in tension” (as he put it) with the statute’s commands that the actuary use “reasonable” assumptions and give his or her “best estimate” of the liability. How could it be, he asked, that an actuary is giving his or her “best estimate” of liability if the actuary must rely on assumptions that he or she believes “were wrong” at the moment of calculation.

In a similar vein, Justice Ketanji Brown Jackson wanted to know how Kenneally’s position could make sense for something like COVID, which changed the likely return of assets in a major way. She seemed quite dubious of his view – that the actuary (in her words) “would have to ignore that.” Like Kavanaugh, she characterized the departing company’s position as inconsistent with the statute’s command that the actuary give his or her “best” estimate. Chief Justice John Roberts went even further down that road, asking about the impact of things like “the start of World War II, Pearl Harbor.”

Probably the most telling feature of the argument was its brevity, as the justices had little or nothing of substance to ask of John E. Roberts (representing the fund) or Kevin Barber, appearing in support of the fund for the federal government. That often suggests that the justices are disposed to vote for that side of the case.

As I suggested in my preview, this is a pretty technical ERISA case, and a lot of money is at stake here. There always is a chance that when the justices go back to write their opinions they will decide that something in the statute compels a different result. But the argument at least suggests a bench motivated to leave the actuaries free to do what they think is best on the day they have to do it.