Takeaways
- The Ninth Circuit’s City of Tacoma decision reaffirmed that using the applicable PBGC annuity rates to calculate withdrawal liability is improper.
- The court also determined it was proper to order a multiemployer pension fund to recalculate withdrawal liability using a higher rate that represents the actuary’s best estimate of investment return.
- The decision highlights the cost and difficulty for employers of contesting withdrawal liability assessments.
Related link
- City of Tacoma v. Western Metal Industry Pension Fund
Article
The U.S. Court of Appeals for the Ninth Circuit has upheld an arbitrator’s conclusion that the actuary’s use of the Pension Benefit Guaranty Corporation (PBGC) annuity rates was improper to calculate the withdrawal liability of the City of Tacoma, Washington, after it withdrew from the Western Metal Industry Pension Fund. City of Tacoma v. Western Metal Industry Pension Fund, No. 25-4055 (Aug. 6, 2026) (unpublished). The court explained that these PBGC rates “did not satisfy ERISA’s requirement that withdrawal-liability assumptions reflect the ‘best estimate of anticipated experience under the plan.’”
The Ninth Circuit has jurisdiction over Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.
Withdrawal Liability
Withdrawal liability is a statutory obligation that can be triggered when an employer’s obligation to contribute to a multiemployer pension plan (MEPP) ceases in whole or part. The amount of an employer’s withdrawal liability represents the employer’s allocable share of the MEPP’s unfunded vested benefits (UVB). UVB represents the excess of liabilities over assets. Since liabilities represent obligations to make payments in the future (e.g., when a participant retires), they must be discounted back to present value using an interest rate determined by the actuary (the Withdrawal Liability Interest Rate.)
The Withdrawal Liability Interest Rate is the most critical factor in the withdrawal liability calculation. The lower the interest rate, the greater the withdrawal liability that is assessed on withdrawn employers. For this reason, MEPPs are incentivized to use a lower Withdrawal Liability Interest Rate. In contrast, MEPPs are incentivized to use a higher interest rate (the Funding Interest Rate) to minimize the contributions required from employers remaining in the MEPP.
Case Background
In City of Tacoma, the Western Metal Industry Pension Fund assessed the City of Tacoma withdrawal liability in excess of $44 million, calculated using the applicable PBGC Rate (2.53%) as the Withdrawal Liability Interest Rate. At this time, the Fund was using a Funding Interest Rate of 7%…