The National Retirement Fund, et al. v. Metz Culinary Management, Inc.

17-1211-cv
The National Retirement Fund, et al. v. Metz Culinary Management, Inc.
1UNITED STATES COURT OF APPEALS
2FOR THE SECOND CIRCUIT
3August Term, 2017
4 Docket No. 17-1211-cv
5- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
6THE NATIONAL RETIREMENT FUND, EACH ON BEHALF OF THE LEGACY
7PLAN OF THE NATIONAL RETIREMENT FUND, BOARD OF TRUSTEES OF
8THE NATIONAL RETIREMENT FUND, EACH ON BEHALF OF THE LEGACY
9PLAN OF THE NATIONAL RETIREMENT FUND,
10
11Plaintiffs – Counter – Defendants – Appellees,
12
13v.
14
15METZ CULINARY MANAGEMENT, INC.,
16
17Defendant – Counter – Claimant – Appellant.
18
19
20- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
21
22 ARGUED: February 8, 2018
23 DECIDED: January 2, 2020
24
25B e f o r e:WINTER, LIVINGSTON, and CHIN, Circuit Judges.
26
1

1Appeal from a judgment of the United States District Court for the
2Southern District of New York (Valerie Caproni, Judge), vacating an arbitration
3award. The award held that interest rate assumptions for purposes of
4withdrawal from a multiemployer pension plan liability are those in effect on the
5last day of the year preceding the employer’s withdrawal. The district court held
6that interest rate assumptions may be determined after withdrawal and
7retroactively imposed. We disagree and vacate.
8ROBERT LITVIN (Paisner Litvin LLP, on the
9brief), Bala Cynwyd, PA, for Defendant –
10Counter – Claimant – Appellant.
11
12RONALD E. RICHMAN (Schulte Roth & Zabel
13LLP, on the brief), New York, New York, for
14Plaintiffs – Counter – Defendants – Appellees.
15
16Robert R. Perry, Todd H. Girshon (Jackson Lewis
17P.C.), New York, New York, for Amicus Curiae
18Joseph Abboud Manufacturing Corp. and
19Waterford Hotel Group, Inc.
20
21
22WINTER, Circuit Judge:
23
24
25Metz Culinary Management, Inc., a contributing employer to the National
26Retirement Fund, appeals from Judge Caproni’s decision vacating Arbitrator Ira
2

1F. Jaffe’s award. His award held that appellees improperly calculated appellant’s
2withdrawal liability based on interest rate assumptions adopted in 2014 after
3appellant 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 not4
5require actuaries to calculate withdrawal liability based on interest rate
6assumptions used prior to an employer’s withdrawal from a plan. The district
7court further held that interest rate assumptions must be affirmatively reached
8and may not roll over automatically from the preceding plan year. For reasons
9stated below, we vacate the district court’s judgment.
10BACKGROUND
11Appellees are a trust fund, established and maintained pursuant to Section
12302(c)(5) of the Labor Management Relations Act (“LMRA”), 29 U.S.C. § 186(c)(5),
13and its Board of Trustees (“Trustees”). The Fund -- through its Trustees --
14sponsors and administers the Legacy Plan of the National Retirement Fund (the
15“Plan”), a multiemployer plan within the meaning of Section 3(37) of ERISA, 29
16U.S.C. § 1002(37).
17In multiemployer pension plans, several “employers pool contributions
18into a single fund that pays benefits to covered retirees who spent a certain
3

1amount of time working for one or more of the contributing employers.” Trs. of
2The Local 138 Pension Tr. Fund v. F.W. Honerkamp Co., 692 F.3d 127, 129 (2d
3Cir. 2012). Appellant was an employer contributing to the Plan until May 16,
42014 when it effectuated a complete withdrawal from the Plan. See Section
54203(a) of ERISA, 29 U.S.C. § 1383(a).
6When a plan is underfunded, an employer seeking to withdraw must pay
7its share of unfunded vested benefits (“UVBs”). See 29 U.S.C. § 1381(b)(1). UVBs
8are “calculated as the difference between the present value of vested benefits and
9the current value of the plan’s assets.” Pension Benefit Guar. Corp. V. R.A. Gray
10& Co., 467 U.S. 717, 725 (1984) (citing 29 U.S.C. §§ 1381, 1391). The
11Multiemployer Pension Plan Amendments Act of 1980 (the “MPPAA”) sets forth
12rules for calculating a withdrawing employer’s share of a plan’s underfunding.
13Pursuant to the MPPAA, “[i]f an employer withdraws from a multiemployer
14plan . . . the employer is liable to the plan in the amount determined under this
15part to be the withdrawal liability.” 29 U.S.C. § 1381(a). “Withdrawal liability is
16the withdrawing employer’s proportionate share of the pension plan’s unfunded
17vested benefits.” Honerkamp, 692 F.3d at 130.
4

1Pursuant to Section 4211 of ERISA, a plan may select one of four identified
2allocation methods or develop its own method for calculating UVBs, subject to
3approval by the Pension Benefit Guaranty Corporation (“PBGC”). 29 U.S.C. §
41391. Critical to the present dispute, Section 1391 of the MPPAA directs plans to
5calculate the withdrawal charge, not as of the date of withdrawal or sometime
6later, but as of the last day of the plan year preceding the year during which the
7employer withdrew. This date could be up to a year earlier. Milwaukee Brewery
8Workers’ Pension Plan v. Joseph Schlitz Brewing Co., 513 U.S. 414, 417-18 (1995)
9(citing §§ 1391(b)(2)(A)(ii), (b)(2)(E)(i), (c)(2)(C)(i), (c)(3)(A), and (c)(4)(A)). The
10last day of the plan year preceding the year during which the employer
11withdraws is referred to as the “Measurement Date.” Because appellant
12withdrew from the Plan on May 16, 2014, the applicable Measurement Date is
13December 31, 2013.
14Of the many actuary assumptions necessary to calculate withdrawal
15liability, only the interest rate assumption is at issue in this matter. To determine
16an employer’s withdrawal liability, a plan’s actuary must estimate the present
17value of the plan’s vested benefits and the interest rate necessary to discount the
18liability for future benefit payments. See Combs v. Classic Coal Corp., 931 F.2d
5

196, 98 (D.C. Cir. 1991). Because the interest rate assumption governs the estimate
2of a plan’s growth from investments apart from employers’ future contributions,
3increasing the interest rate assumption decreases an employer’s withdrawal
4liability, and vice versa. See id. ERISA Section 4213(a) requires withdrawal
5liability to be based on “reasonable” actuarial assumptions and methods, “taking
6into account the experience of the plan and reasonable expectations,” and to be
7“the actuary’s best estimate of anticipated experience under the plan.” 29 U.S.C.
8§ 1393(a)(1).
9Buck Consultants (“Buck”) served as appellees’ actuary for many years.
10In October 2013, appellees replaced Buck with Horizon Actuarial Services, LLC
beginning in 2014. For several years before its termination as the Plan’s actuary,11
12Buck utilized a 7.25% interest rate assumption to determine the Fund’s UVBs.
13The Plan’s 2013 Form 5500 Schedule MB,
1
states that a 7.25% interest rate
14assumption remained in place in 2013 for purposes of determining UVBs. At a
7.25% interest rate, appellant’s withdrawal liability would have been $254,644.15
1
A Form 5500 is an annual report, filed with the United States Department of
Labor, for an employee benefit plan. Schedule MB is the portion of the Form
5500 that provides actuarial information for a defined benefit pension fund and is
completed by the fund’s actuary.
6

In June 2014, however, Horizon informed the Trustees that the interest rate1
assumption for purposes of withdrawal liability was reduced from 7.25% to2
approximately 3.25%.
2
At a 3.25% interest rate, appellant’s withdrawal liability3
was calculated to be $997,734. The Fund applied the revised interest rate to4
calculate appellant’s withdrawal liability at the higher figure. Appellant then5
commenced the arbitration proceeding that led to this appeal. 6
7The parties agreed that “a preliminary issue” relating to “the interest rate
8assumption used by the Fund to calculate [Metz’s] withdrawal liability” would
9“be presented for ruling on the basis of written stipulations and briefing.” App’x
10at 22-23.
11On February 22, 2016, Arbitrator Jaffe issued an “Interim Award” holding
12that appellees’ retroactive application of the PBGC rate to calculate appellant’s
13withdrawal liability was improper. It stated:
14The Fund’s assertion that the Fund Actuary had not made any
15interest rate assumption determination as of December 31, 2013, for
2
The documents in the record reflecting this change relate only to withdrawal
liability, and it appears that no change was made as to the assumed interest rate
for other purposes. If so, the change increased the liability only for withdrawing
employers while leaving the contributions of remaining employers unchanged.
In view of our disposition of this matter and the lack of an explicit finding, this
issue is not dispositive.
7

1purposes of calculating the Fund’s [UVBs] for withdrawal liability is
2rejected. MPPAA requires that the assumptions and methods in effect
3on December 31, 2013, be used for calculating the Employer’s
4withdrawal liability. Absent some change by the Fund actuaries, the
5existing assumptions and methods remained in place as of December
631, 2013.
7
8App’x at 37.
9Accordingly, the Recalculation of Withdrawal Liability reduced appellant’s
10withdrawal liability from $997,734 to $254,644.
11 On March 31, 2016, appellees brought the present action pursuant to
12Section 4221(b)(2) of ERISA, 29 U.S.C. § 1401(b)(2), seeking to modify and/or
13vacate the arbitrator’s Final Award. On May 4, 2016, appellant filed a
14counterclaim, seeking enforcement of the Final Award. On March 27, 2017, the
15district court vacated the Final Award, holding that “ERISA does not require
16actuaries to make withdrawal liability assumptions by the measurement date.”
17App’x at 283, 289-90. According to the district court, “the withdrawal liability
18interest rate assumption in effect on the Measurement Date is not applicable to
19the upcoming plan year unless the actuary affirmatively determines that the
20assumption . . . is reasonable and her best estimate of anticipated experience
8

1under the plan as of the Measurement Date.” App’x at 279 (emphasis in
2original).
3On April 25, 2017, appellant timely appealed.
4DISCUSSION
5We review an arbitrator’s legal conclusions made under Section 4221 of
6ERISA de novo. See HOP Energy, L.L.C. v. Local 553 Pension Fund, 678 F.3d 158,
7160 (2d Cir. 2012). By contrast, factual findings made by an arbitrator enjoy a
8“presumption of correctness.” See ERISA Section 4221(c), 29 U.S.C. § 1401(c)
9(“[T]here shall be a presumption, rebuttable only by a clear preponderance of the
10evidence, that the findings of fact made by the arbitrator were correct.”);
11Sigmund Cohn Corp. v. Dist. No. 15 Machinists Pension Fund, 804 F. Supp. 490,
12493 (E.D.N.Y. 1992) (“Courts reviewing arbitration awards have consistently
13upheld the arbitrator’s factual findings under section 4221(c)’s ‘presumption of
14correctness.’”).
15The parties use copious amounts of ink in argument over what are the
16arbitrator’s legal interpretations of the MPPAA and what are his factual findings.
17Much of this argumentation is irrelevant because the legal argument is decisive
18on the undisputed facts. That issue is whether, under the MPPAA, a fund may
9

1select an interest rate assumption after the Measurement Date and retroactively
2apply that assumption to withdrawal liability calculations. Appellant’s
3withdrawal from the Plan on May 16, 2014 caused December 31, 2013 to be the
4Measurement Date. As a factual matter, it is not seriously contested that the
5interest assumption as of that date was 7.25%. Appellees selected the revised rate
6no earlier than June 2014, claiming that rate to be proper for the earlier
7Measurement Date.
8As the arbitrator’s award states, “there is no dispute that Horizon did not
9adopt the PBGC rates as the interest rate assumption for withdrawal liability
10purposes until some time in 2014,” after the Measurement Date of December 31,
112013. App’x at 37. The arbitrator stated that the Fund’s “decision to apply [a]
12changed assumption [rate] retroactively so as to increase the withdrawal liability
13assessed to [Metz] and other employers who withdrew from the Fund after
14December 31, 2013, was violative of MPPAA.” App’x at 37. While the statement
15of the Fund’s action is an undisputed factual finding, the legal conclusion is
16subject to de novo review.
17ERISA and Congress’s guidelines for calculating an employer’s withdrawal
18liability, see Section 4213 of ERISA, 29 U.S.C. § 1393, are silent as to whether
10

1interest rate assumptions on the Measurement Date must be affirmatively
2adopted, or whether, absent an actuary’s affirmative selection of a new
3assumption rate, the rate in effect during the previous plan year rolls over
4automatically. Although the district court held that “Section 4213 does not allow
5stale assumptions from the preceding plan year to roll over automatically,”
6App’x at 278, there is no statutory or caselaw support for that proposition, and
7we do not agree with it. In the context of multiemployer pension plans, interest
8rate assumptions cannot be altered daily and must have a degree of stability.
9Nor, in that context, do interest rate assumptions remain open forever and
10subject to retroactive changes in later years. Indeed, the Plan itself used the
117.25% rate for several years and its annual reports to the government reflect the
12ongoing rollover.
13Moreover, Section 4214 imposes a notice requirement on multiemployer
14funds for any plan rule or amendment with respect to withdrawal liability. The
15legislative history demonstrates that it was designed to protect employers from
16the retroactive application of rules relating to the calculation of withdrawal
17liability:
18There are several situations where plans, in the application of
11

1their own rules, either initially or by amendment, are permitted a wide
2degree of latitude in allocating and calculating withdrawal liability. In
3order to protect an employer from certain retroactive changes in a
4plan’s rules, the bill [H.R. 3904] prohibits the retroactive application of
5a plan rule or amendment relating to withdrawal liability from
6applying to a withdrawal occurring before its date of adoption, unless
7the employer consents to its earlier application.
8
9The bill also requires that plan rules and amendments operate
10and be applied uniformly with respect to all employers except to the
11extent that lack of uniformity would be required to take into account
12employers’ credit ratings.
13
14Under the bill, when a plan rule or amendment affects
15withdrawal liability, the plan sponsor is required to give notice of the
16adoption of the rule or amendment to all employers required to
17contribute to the plan and to all employee organizations representing
18employees covered by the plan.
19
20H.R. Rep. No. 96-869, pt. 2 at 30.
21Although Section 4214 does not define “plan rules and amendments” and
22Section 4213 –- unlike Section 4214 –- does not specifically address retroactivity,
23the retroactive selection of interest rate assumptions for purposes of withdrawal
24liability, as endorsed by the district court, is, therefore, inconsistent with
25Congress’s legislative intent. Moreover, certain provisions of ERISA allow
26employers to request and receive notice of their estimated withdrawal liability
27prior to actually withdrawing from a fund. For example, Section 101 provides
12

1that “[t]he plan sponsor or administrator of a multiemployer plan shall, upon
2written request, furnish to any employer who has an obligation to contribute to
3the plan,” a “[n]otice of potential withdrawal liability.” 29 U.S.C. § 1021(l)(1). The
4plan administrator is also required to provide:
(A) the estimated amount which would be the amount of such5
6employer’s withdrawal liability under part 1 of subtitle E of subchapter
7III if such employer withdrew on the last day of the plan year
8preceding the date of the request, and
9
(B) an explanation of how such estimated liability amount was10
11determined, including the actuarial assumptions and methods used to
12determine the value of the plan liabilities and assets, the data regarding
13employer contributions, unfunded vested benefits, annual changes in
14the plan’s unfunded vested benefits, and the application of any
15relevant limitations on the estimated withdrawal liability.
16
1729 U.S.C. § 1021(l)(1)(A), (B). Such provisions are of no value if retroactive
18
19 changes in interest rates assumptions may be made at any time.
20
21In considering the retroactive selection of interest rate assumptions, we
22conclude that the assumptions and methods used to calculate the interest rate
23assumption for purposes of withdrawal liability must be those in effect as of the
24Measurement Date.
3
Absent a change by a Fund’s actuary before the
3
We are mindful of the district court’s conviction that “[t]he Arbitrator
incorrectly conflated” the terms “as of” and “in effect.” App’x at 279. According
to that court, “the withdrawal liability interest rate assumption in effect on the
13

1Measurement Date, the existing assumptions and methods remain in effect.
2Were it otherwise, the selection of an interest rate assumption after the
3Measurement Date would create significant opportunity for manipulation and
4bias. Nothing would prevent trustees from attempting to pressure actuaries to
5assess greater withdrawal liability on recently withdrawn employers than would
6have been the case if the prior assumptions and methods actually in place on the
7Measurement Date were used. Actuaries unwilling to yield to trustees’ preferred
8interest rate assumptions can be replaced by others less reticent.
9In Concrete Pipe & Products of California, Inc. v. Construction Laborers
10Pension Tr., 508 U.S. 602, 632 (1993), the Supreme Court acknowledged that the
11actuary in that case was “not, like the trustees, vulnerable to suggestions of bias
12or its appearance” because “actuaries are trained professionals subject to
13regulatory standards.” The Court warned, however, that
[u]sing different assumptions [for different purposes] could very well14
15be attacked as presumptively unreasonable both in arbitration and on
judicial review. . . .16
Measurement Date is not applicable to the upcoming plan year unless the actuary
affirmatively determines that the assumption . . . is reasonable and her best
estimate of anticipated experience under the plan as of the Measurement Date.”
App’x at 279 (emphasis in original). For the reasons stated in this opinion,
however, we believe the district court’s reasoning to be unpersuasive.
14

1[This] view that the trustees are required to act in a reasonably
2consistent manner greatly limits their discretion, because the use of
3assumptions overly favorable to the fund in one context will tend to
4have offsetting unfavorable consequences in other contexts. For
5example, the use of assumptions (such as low interest rates) that would
6tend to increase the fund’s unfunded vested liability for withdrawal
7liability purposes would also make it more difficult for the plan to meet
8the minimum funding requirements of § 1082.
9
10Id. at 633 (second and third alterations in original) (quoting United Retail &
11Wholesale Emps. Teamsters Union Local No. 115 Pension Plan v. Yahn &
12McDonnell, Inc., 787 F.2d 128, 146-47 (3d Cir. 1986) (Seitz, J., dissenting in part)).
13The opportunity for manipulation and bias is particularly great where
14funds use different interest rate assumptions for withdrawal liability and
15minimum funding purposes. Indeed, Arbitrator Jaffe specifically acknowledged
16that “[t]his potential for bias to operate is particularly great if the changed
17assumptions and methods relate only to those used to calculate the [UVBs] of the
18fund for purposes of withdrawal liability and not for funding or other purposes
19(as appears to have been the case in this matter).” App’x at 39-40 (emphasis
20added); see Concrete Pipe, 508 U.S. at 633 n.19 (“we are aware of at least one case
21in which a plan sponsor exercised decisive influence over an actuary whose
22initial assumptions it disliked”) (citing Huber v. Casablanca Indus., Inc., 916 F.2d
15

185, 93 (3d Cir. 1990)). This appeal, therefore, illustrates the type of results that
2can be “attacked as presumptively unreasonable both in arbitration and on
3judicial review” of which Concrete Pipe warns. Concrete Pipe, 508 U.S. at 633.
4 CONCLUSION
5We hold that interest rate assumptions for withdrawal liability purposes
6must be determined as of the last day of the year preceding the employer’s
7withdrawal from a multiemployer pension plan. Absent any change to the
8previous plan year’s assumption made by the Measurement Date, the interest
9rate assumption in place from the previous plan year will roll over automatically.
10The judgment of the district court is vacated, and the case is remanded
11with directions to enter judgment for the appellant and to remand any remaining
12issues to Arbitrator Jaffe.
13
14
16