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National Retirement Fund v. Metz Culinary Management, Inc.

United States Court of Appeals, Second Circuit

January 2, 2020

THE NATIONAL RETIREMENT FUND, EACH ON BEHALF OF THE LEGACY PLAN OF THE NATIONAL RETIREMENT FUND, BOARD OF TRUSTEES OF THE NATIONAL RETIREMENT FUND, EACH ON BEHALF OF THE LEGACY PLAN OF THE NATIONAL RETIREMENT FUND, Plaintiffs - Counter - Defendants - Appellees,
v.
METZ CULINARY MANAGEMENT, INC., Defendant - Counter - Claimant - Appellant.

          ARGUED: February 8, 2018

         Appeal from a judgment of the United States District Court for the Southern District of New York (Valerie Caproni, Judge), vacating an arbitration award. The award held that interest rate assumptions for purposes of withdrawal from a multiemployer pension plan liability are those in effect on the last day of the year preceding the employer's withdrawal. The district court held that interest rate assumptions may be determined after withdrawal and retroactively imposed. We disagree and vacate.

          ROBERT LITVIN (Paisner Litvin LLP, on the brief), Bala Cynwyd, PA, for Defendant - Counter - Claimant - Appellant.

          RONALD E. RICHMAN (Schulte Roth & Zabel LLP, on the brief), New York, New York, for Plaintiffs - Counter - Defendants - Appellees.

          Robert R. Perry, Todd H. Girshon (Jackson Lewis P.C.), New York, New York, for Amicus Curiae Joseph Abboud Manufacturing Corp. and Waterford Hotel Group, Inc.

          Before: WINTER, LIVINGSTON, and CHIN, Circuit Judges.

          WINTER, CIRCUIT JUDGE.

         Metz Culinary Management, Inc., a contributing employer to the National Retirement Fund, appeals from Judge Caproni's decision vacating Arbitrator Ira F. Jaffe's award. His award held that appellees improperly calculated appellant's withdrawal liability based on interest rate assumptions adopted in 2014 after appellant withdrew from the Plan. The district court held that Section 4213 of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1393, does not require actuaries to calculate withdrawal liability based on interest rate assumptions used prior to an employer's withdrawal from a plan. The district court further held that interest rate assumptions must be affirmatively reached and may not roll over automatically from the preceding plan year. For reasons stated below, we vacate the district court's judgment.

         BACKGROUND

         Appellees are a trust fund, established and maintained pursuant to Section 302(c)(5) of the Labor Management Relations Act ("LMRA"), 29 U.S.C. § 186(c)(5), and its Board of Trustees ("Trustees"). The Fund -- through its Trustees --sponsors and administers the Legacy Plan of the National Retirement Fund (the "Plan"), a multiemployer plan within the meaning of Section 3(37) of ERISA, 29 U.S.C. § 1002(37).

         In multiemployer pension plans, several "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 The Local 138 Pension Tr. Fund v. F.W. Honerkamp Co., 692 F.3d 127, 129 (2d Cir. 2012). Appellant was an employer contributing to the Plan until May 16, 2014 when it effectuated a complete withdrawal from the Plan. See Section 4203(a) of ERISA, 29 U.S.C. § 1383(a).

         When a plan is underfunded, an employer seeking to withdraw must pay its share of unfunded vested benefits ("UVBs"). See 29 U.S.C. § 1381(b)(1). UVBs 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. 717, 725 (1984) (citing 29 U.S.C. §§ 1381, 1391). The Multiemployer Pension Plan Amendments Act of 1980 (the "MPPAA") sets forth rules for calculating a withdrawing employer's share of a plan's underfunding. 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." Honerkamp, 692 F.3d at 130.

         Pursuant to Section 4211 of ERISA, a plan may select one of four identified allocation methods or develop its own method for calculating UVBs, subject to approval by the Pension Benefit Guaranty Corporation ("PBGC"). 29 U.S.C. § 1391. Critical to the present dispute, Section 1391 of the MPPAA directs plans to calculate the withdrawal charge, not as of the date of withdrawal or sometime later, but as of the last day of the plan year preceding the year during which the employer withdrew. This date could be up to a year earlier. Milwaukee Brewery Workers' Pension Plan v. Joseph Schlitz Brewing Co., 513 U.S. 414, 417-18 (1995) (citing §§ 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 withdraws is referred to as the "Measurement Date." Because appellant withdrew from the Plan on May 16, 2014, the applicable Measurement Date is December 31, 2013.

         Of the many actuary assumptions necessary to calculate withdrawal liability, only the interest rate assumption is at issue in this matter. To determine an employer's withdrawal liability, a plan's actuary must estimate the present value of the plan's vested benefits and the interest rate necessary to discount the liability for future benefit payments. See Combs v. Classic Coal Corp., 931 F.2d 96, 98 (D.C. Cir. 1991). Because the interest rate assumption governs the estimate of a plan's growth from investments apart from employers' future contributions, increasing the interest rate assumption decreases an employer's withdrawal liability, and vice versa. See id. 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)(1).

         Buck Consultants ("Buck") served as appellees' actuary for many years. In October 2013, appellees replaced Buck with Horizon Actuarial Services, LLC beginning in 2014. For several years before its termination as the Plan's actuary, Buck utilized a 7.25% interest rate assumption to determine the Fund's UVBs. The Plan's 2013 Form 5500 Schedule MB, [1] states that a 7.25% interest rate assumption remained in place in 2013 for ...


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