United States District Court, S.D. New York
THE NATIONAL RETIREMENT FUND and THE BOARD OF TRUSTEES OF THE NATIONAL RETIREMENT FUND, each on behalf of the Legacy Plan of the National Retirement Fund, Plaintiffs,
METZ CULINARY MANAGEMENT, INC., Defendant.
MEMORANDUM OPINION & ORDER
VALERIE CAPRONI, United States District Judge.
the National Retirement Fund and the Board of Trustees of the
National Retirement Fund (the “Trustees, ” and
together with the National Retirement Fund, the
“Fund”), each on behalf of the Legacy Plan of the
National Retirement Fund (“the “Plan”),
bring this action against the Defendant, Metz Culinary
Management, Inc. (“Metz”), pursuant to Sections
4221(b)(2) and 4301 of the Employee Retirement Income
Security Act of 1974 (“ERISA”), as amended, 29
U.S.C. §§ 1401(b)(2), 1451, to modify or vacate the
arbitration award issued by Arbitrator Ira F. Jaffe in
Metz Culinary Management, Inc. and National Retirement
Fund, American Arbitration Association
(“AAA”) Case No. 01-14-0002-2075 (the
“Arbitration”) on March 28, 2016 (the
“Final Award”). Metz has cross moved to confirm
the Final Award. For the following reasons, the Fund's
motion to vacate the Final Award is GRANTED, and Metz's
motion to confirm the Final Award is DENIED.
Statutory Background Regarding Withdrawal Liability
its several goals, ERISA “was designed to ensure that
employees and their beneficiaries would not be deprived of
anticipated retirement benefits by the termination of pension
plans before sufficient funds have been accumulated in the
plans.” Connolly v. Pension Benefit Guar.
Corp., 475 U.S. 211, 214 (1986) (quotation marks and
citation omitted). “One type of pension plan regulated
by ERISA is the multiemployer pension plan, in which multiple
employers pool contributions into a single fund that pays
benefits to covered retirees who spent a certain amount of
time working for one or more of the contributing
employers.” Trs. of Local 138 Pension Tr.
Fund v. F.W. Honerkamp Co. Inc., 692 F.3d 127, 129 (2d
Cir. 2012). Although multiemployer plans have many benefits,
such as allowing employers to share the costs and risks
inherent in the administration of pension plans,
[a] key problem of ongoing multiemployer plans, especially in
declining industries, is the problem of employer withdrawal.
Employer withdrawals reduce a plan's contribution base.
This pushes the contribution rate for remaining employers to
higher and higher levels in order to fund past service
liabilities, including liabilities generated by employers no
longer participating in the plan, so-called inherited
liabilities. The rising costs may encourage-or force-further
withdrawals, thereby increasing the inherited liabilities to
be funded by an ever-decreasing contribution base. This
vicious downward spiral may continue until it is no longer
reasonable or possible for the pension plan to continue.
Id. (quoting Pension Benefit Guar. Corp. v. R.A.
Gray & Co., 467 U.S. 717, 722 n. 2 (1984)).
order to address this problem, Congress amended ERISA by
enacting the Multiemployer Pension Plan Amendments Act of
1980 (“the MPPAA), Pub. L. No. 96-364, 94 Stat. 1208
(codified as amended in scattered sections of Titles 26 and
29 of the United States Code). Id. Pursuant to the
MPPAA, “[i]f an employer withdraws from a multiemployer
plan . . . the employer is liable to the plan in the amount
determined under this part to be the withdrawal
liability.” 29 U.S.C. § 1381(a). “Withdrawal
liability is the withdrawing employer's proportionate
share of the pension plan's unfunded vested
benefits.” Trs. of Local 138 Pension Tr. Fund v.
F.W. Honerkamp Co. Inc., 692 F.3d at 130; see
also 29 U.S.C. §§ 1381, 1391. Unfunded vested
benefits are “calculated as the difference between the
present value of vested benefits and the current value of the
plan's assets.” Pension Benefit Guar. Corp. v.
R.A. Gray & Co., 467 U.S. at 725 (citing 29 U.S.C.
§§ 1381, 1391). In other words, unfunded vested
benefits reflect a plan's underfunding in light of its
commitment to pay benefits to plan participants in the
future. The calculation of an employer's withdrawal
liability thus requires the allocation of a plan's
unfunded vested benefits among the plan's contributing
employers. Combs v. Classic Coal Corp., 931 F.2d 96,
98 (D.C. Cir. 1991). Section 4211 of ERISA allows a plan to
choose one of four identified allocation methods or to
develop its own method, subject to approval by the Pension
Benefit Guaranty Corporation (“PBGC”). 29 U.S.C.
§ 1391. Withdrawal liability is required to be
calculated “not as of the day of withdrawal, but as of
the last day of the plan year preceding the year during which
the employer withdrew.” Milwaukee Brewery
Workers' Pension Plan v. Joseph Schlitz Brewing Co.,
513 U.S. 414, 418 (1995) (citing 29 U.S.C. §§
1391(b)(2)(A)(ii), (b)(2)(E)(i), (c)(2)(C)(i), (c)(3)(A), and
(c)(4)(A)). The “last day of the plan year preceding
the year during which the employer withdrew” will
hereafter be referred to as “the Measurement
order to determine a withdrawing employer's withdrawal
liability, the plan's actuary must first calculate the
plan's unfunded vested benefits; to do so, the actuary
must estimate the present value of the plan's vested
benefits. Combs v. Classic Coal Corp., 931 F.2d at
98. The actuary makes certain assumptions in order to
estimate the present value of the plan's vested benefits,
including the interest rate necessary to discount the
liability for future benefit payments. Id;
Masters, Mates & Pilots Pension Plan v. USX
Corp., 900 F.2d 727, 733 (4th Cir. 1990) (explaining
that to “calculate the present value of the vested
benefits that are to be paid out in the future, ”
“[a]n interest rate, or rate of return, is applied in
order to determine what present amount of investment will
yield the future amounts required to satisfy those vested
benefits”); In re HNRC Dissolution Co., 396
B.R. 461, 473 (B.A.P. 6th Cir. 2008) (“The calculation
of the ‘present value' of vested benefits also
requires the plan's actuary to discount the future stream
of benefit payments at an appropriate
interest.”). Although there are many actuarial
assumptions necessary to calculate withdrawal liability, only
the interest rate assumption is at issue in this case.
Relevant to this case, “[i]ncreasing the interest rate
assumption decreases the employer's withdrawal
liability”-and vice versa. Combs v. Classic Coal
Corp., 931 F.2d at 98; see also Masters, Mates &
Pilots Pension Plan v. USX Corp., 900 F.2d at 733. ERISA
does not dictate the interest rate. Instead, ERISA Section
4213(a) requires withdrawal liability to be based on
“reasonable” actuarial assumptions and methods,
“taking into account the experience of the plan and
reasonable expectations, ” and to be “the
actuary's best estimate of anticipated experience under
the plan.” 29 U.S.C. § 1393(a).
Fund is a Taft-Harley trust fund, established and maintained
pursuant to Section 302(c)(5) of the Labor Management
Relations Act, 29 U.S.C. § 186(c)(5), with trustees
equally divided between labor organizations currently and
formerly affiliated with UNITED HERE and Workers United and
employers that contribute to the Fund. Am. Compl. ¶ 4
(Dkt. 8). The Plan is a multiemployer plan within the meaning
of Section 3(37) of ERISA, 29 U.S.C. § 1002(37).
Id. ¶ 6. Metz participated in the Fund as a
contributing employer, meaning it made contributions to the
Fund to provide pensions to its employees in accordance with
the governing collective bargaining agreements. Answer to Am
Compl. Ex. B (“Stip.”) ¶ 2 (Dkt.
The Fund's Selection of an Interest Rate Assumption for
Withdrawal Liability for Plan Years 2013 and 2014
Fund's plan year begins on January 1 and ends on December
31 (the “Plan Year”). Am. Compl. ¶ 12.
Accordingly, under the Plan, the Measurement Date for
withdrawal liability for a given year is December 31 of the
prior year. As of December 31, 2012, Buck Consultants
(“Buck”) was, and had been for years, the
Fund's actuary. Id. ¶¶ 14-15; Stip.
¶ 7. Buck's interest rate assumption for the 2013
Plan Year for calculating withdrawal liability was 7.25%. Am.
Compl. ¶ 15. Thus, the withdrawal liability for any
employer that withdrew from the Plan during 2013 would be
calculated using a discount rate of 7.25%.
October 2013, the Fund selected Horizon Actuarial Services
LLC (“Horizon”) to replace Buck as the Fund's
actuary. Id. ¶ 13. On June 5, 2014, Horizon
informed the Fund's trustees that Horizon would use a
PBGC rate as its interest rate assumption when it calculated
withdrawal liability for Plan participants that withdrew on
or after January 1, 2014. Id. ¶ 18. On October
3, 2014, Horizon sent a memorandum to the Fund's trustees
explaining its decision to select the PBGC's interest
rate assumption and the impact of the change on withdrawal
liability. Stip. ¶ 12; Litvin Decl. Ex. F (Dkt. 32-1).
The PBGC rate selected by Horizon was 3% as applied to the
first twenty years of unfunded vested benefits and 3.31%
thereafter. Am. Compl. Ex. B (“Interim Award”),
at 4 (Dkt. 8-2); Litvin Decl. Ex. F, at 1. Because the
interest rate assumption decreased from Plan Year 2013 to
Plan Year 2014, withdrawal liability for withdrawing
employers increased from Plan Year 2013 to Plan Year 2014. It
is undisputed that the Fund was in dire financial
circumstances in the time frame relevant to this case,
leading it to freeze the accrual of benefits as of December
31, 2013. Stip. ¶¶ 16-18. The Fund did not provide
any advance written notice in Plan Year 2014 to contributing
employers regarding the interest rate assumption change.
Id. ¶ 19.
the Fund selected Horizon to replace Buck as its actuary in
October 2013, Buck continued to perform some work for the
Fund related to Plan Year 2013. Specifically, in November
2013, Buck completed and issued the Actuarial Valuation
Report for the 2013 Plan Year. Id. ¶¶ 7,
13; Litvin Decl. Ex. G (Dkt. 32-2). On November 6, 2014, Buck
completed and issued the Schedule MB for the Fund's Form
5500 for Plan Year 2013. Stip. ¶ 7; Litvin Decl. Ex. H
Metz's Withdrawal from the Plan
withdrew from the Fund on May 16, 2014. Am. Compl. ¶ 17.
That withdrawal triggered Metz's obligation to pay
withdrawal liability, which would be calculated as of
December 31, 2013. Def. Opp. 5. On June 16, 2014, the Fund
sent Metz a notice and demand letter for the payment of
withdrawal liability. Am. Compl. ¶ 19. In that letter,
the Fund assessed Metz an estimated withdrawal liability of
$954, 821, payable in installments. Id. ¶ 20.
On December 26, 2014, the Fund issued a revised withdrawal
liability assessment to Metz for $997, 734, payable in
installments. Id. ¶ 21.
December 16, 2014, Metz filed a demand for arbitration
against the Fund with the AAA in order to challenge the
Fund's withdrawal liability assessment. Id.
¶ 22. The AAA appointed Ira F. Jaffe, Esq. (the
“Arbitrator”) to serve as arbitrator.
Id. ¶ 23. The Fund and Metz agreed that the
Arbitrator would resolve a preliminary issue regarding the
interest rate assumption used by the Fund to calculate
Metz's withdrawal liability and that he would do so based
solely on written stipulations and briefing. Interim Award
1-2. Accordingly, the parties did not conduct discovery
except for limited document requests by Metz. Am. Compl.
February 22, 2016, the Arbitrator issued an Interim Award,
holding that the Fund improperly used the PBGC rate to
calculate Metz's withdrawal liability. Id.
¶ 25; Interim Award 20. According to the Arbitrator,
because there was no evidence that Buck or Horizon took any
action on or before the Measurement Date to change the
interest rate assumption, the 7.25% interest rate assumption
that indisputably had been in effect for Plan Year 2013
continued as the interest rate assumption for Plan Year 2014.
Interim Award 15-16, 19. The Arbitrator explicitly rejected
the Fund's position that the Fund's actuary had made
no interest rate assumption as of December 31, 2013.
Id. at 16. In doing so, the Arbitrator concluded
that “[a]bsent some change by the Fund actuaries, the
existing assumptions and method remained in place as of
December 31, 2013.” Id. The Arbitrator
then held that Horizon had improperly retroactively changed
the withdrawal liability interest rate assumption in
violation of ERISA and PBGC opinion letters. Id. at
11-16. The Arbitrator made clear that it would have been
permissible for the actuary to have calculated
unfunded vested benefits after the Measurement Date, but the
actuary could only rely on assumptions and methods
“that were actually adopted and in effect as of
December 31, 2013.” Id. at 17. Because,
according to the Arbitrator, the 7.25% withdrawal liability
interest rate assumption was in effect as of the Measurement
Date, the actuary was required to use that rate when
calculating Metz's withdrawal liability. Id. at
Interim Award, the Arbitrator directed the Fund to
recalculate Metz's withdrawal liability “using the
assumptions and methods that were in effect as of December
31, 2013.” Id. 19; Am. Compl. ¶ 26. On
March 7, 2016, the Fund provided Metz an updated withdrawal
liability assessment using the 7.25% withdrawal liability
interest rate assumption from Plan Year 2013. Am. Compl.
¶ 27. The revised withdrawal liability assessment was
approximately $250, 000, see Answer to Am Compl.,
Ex. A, at 1 (Dkt. 16-1), and Metz did not object to the
revised assessment, Am. Compl. ¶ 28. On March
28, 2016, the Arbitrator issued his Final Award, affirming
the revised calculation and converting the Interim Award to a
final award. Id. ¶¶ 29-30; id.
Ex. A. On March 31, 2016, the Fund initiated this action in
order to vacate or modify the Final Award.
principal issue before this Court is whether the Arbitrator
correctly decided that the Fund violated ERISA by selecting
the interest rate assumption for withdrawal liability for the
2014 Plan Year after the Measurement Date. The Arbitrator
reached his conclusion by reframing the issue. The Arbitrator
did not ultimately conclude that the Fund violated ERISA
because its actuary selected a withdrawal liability
interest rate assumption for the 2014 Plan Year after the
Measurement Date. Instead, the Arbitrator concluded that the
Fund violated ERISA because its actuary retroactively
changed the interest rate assumption for the 2014 Plan
Year after the Measurement Date. The Arbitrator's
conclusion hinged on his determination that the existing
interest rate assumption for the 2013 Plan Year became the
interest rate assumption for the 2014 Plan Year because the
Fund's actuary did not affirmatively change the interest
rate assumption by the Measurement Date.
Court rejects the Arbitrator's premise as inconsistent
with ERISA-the withdrawal liability interest rate assumption
for the preceding plan year cannot become the interest rate
assumption for the following plan year by inertia. Nor does
ERISA prohibit a plan's actuary from selecting the
withdrawal liability interest rate assumption after the
Measurement Date. Accordingly, as explained more fully below,
the Arbitrator's Final Award is vacated.
The Court Reviews the Arbitration Award De
parties dispute whether a de novo standard of review
or a rebuttable presumption of correctness applies to resolve
their cross motions to confirm and vacate the Final Award. In
a dispute regarding withdrawal liability under ERISA, courts
review de novo the legal conclusions of the
arbitrator. 666 Drug, Inc. v. Tr. of 1199 SEIU Health
Care Emps. Pension Fund, 571 F. App'x 51, 52 (2d
Cir. 2014) (per curiam); HOP Energy, L.L.C. v. Local 553
Pension Fund, 678 F.3d 158, 160 (2d Cir. 2012). As to
the review of factual findings, ERISA, as amended by the
MPPAA, provides that “there shall be a presumption,
rebuttable only by a clear preponderance of the evidence,
that the findings of fact made by the arbitrator were
correct.” 29 U.S.C. § 1401(c). The statutory
framework does not expressly mandate a standard of review for
mixed questions of law and fact. Chicago Truck Drivers,
Helpers & Warehouse Workers Union (Indep.) Pension Fund
v. Louis Zahn Drug Co., 890 F.2d 1405, 1410 (7th Cir.
1989). The Second Circuit has not resolved the issue, but