The Segal Group is the premier actuarial firm in the country providing services for hundreds of multi-employer pension funds.  For almost 40 years it has used its own methodology, known as the “Segal Blend” to calculate employers’ withdrawal liability successfully without an adverse ruling by either a court or an arbitrator in hundreds of cases.

The Segal Blend calculates the discount rate used in determining the present value of pension benefits for payment by a pension fund in the future.  This methodology has been the basis for the discount rate used in calculating withdrawal liability for hundreds of multi-employer plans.  Because the Segal Blend typically results in using a lower interest rate to calculate withdrawal liability than is typically used for funding purposes, a calculation of withdrawal liability is generally greater using the Segal Blend rate.  This has permitted pension funds to collect additional withdrawal liability from hundreds of employers.

Despite being challenged often by employers, the Segal Blend had enjoyed a perfect record of being upheld in every arbitration and court decision until March 26, 2018.  In a decision by the United States District Court for the Southern District of New York, Judge Sweet in New York Times Company and the Newspaper and Mail Deliverers ‘-Publishers ‘ Pension Fund found that the Segal Blend violated ERISA.  Specifically, the District Court found that the actuary’s “best estimate” of anticipated experience under the plan would have required an interest rate assumption of 7.5%, the rate used for funding purposes, rather than the 6.5% interest rate produced by the Segal Blend.  The District Court ordered the Pension Fund to recalculate the withdrawal liability using the higher interest rate.

The matter was appealed to the United States Court of Appeals for the Second Circuit.  In May 2019, oral argument was held.  Last week the case ended.  Surprisingly, the parties stipulated by which the appeal was withdrawn with prejudice and counsel fees were not sought.    Importantly, for employers the stipulation left intact Judge Sweet’s decision that using the Segal Blend violated ERISA.  The Second Circuit approved that settlement on September 16, 2019.

What are the implications of that stipulation for employers and what factors in Judge Sweet’s decision contributed to the resolution?  In New York Times, the decision reduced a withdrawal liability assessment of $26,000,000 to zero.  Employers contributing to funds using the Segal Blend should not hesitate to retain actuaries to calculate the withdrawal liability using the rate for funding purposes.

Although the ruling does provide another arrow in an employer’s quiver to use in combatting the predominantly fund favored withdrawal liability process, it does not resolve or even clarify the issue.

Almost concurrently with Judge Sweet’s ruling, District Judge McNulty of the United States District Court for the District of New Jersey in Manhattan Ford Lincoln, Inc. v. UAW Local 259 Pension Plan (“Manhattan Ford”) upheld an arbitrator’s ruling that using a plan’s funding assumption is not required to determine withdrawal liability.  In so ruling, the Court determined that the employer had failed to prove that the Pension Fund’s use of the Segal Blend in calculating withdrawal liability was not reasonable.  Notably, use of the 7.5% interest rate for funding purposes would have resulted in no withdrawal liability.

Manhattan Ford was appealed to the United States Court of Appeals for the Third Circuit but was settled before the court reached a decision.

Although the Segal Blend issue has not been resolved, the recent resolution should provide an incentive for employers to conduct additional research into the funds to which they contribute and to retain ERISA counsel with specific experience and expertise in withdrawal liability.  Jackson Lewis can assist you with all multi-employer pension fund issues.

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Photo of Paul A. Friedman Paul A. Friedman

Paul A. Friedman is a principal in the White Plains, New York, office of Jackson Lewis, P.C. His legal practice is focused on ERISA litigation, labor and Multiemployer Pension Plan Amendments Act (MPPAA) arbitrations and is well grounded in his earlier experience as…

Paul A. Friedman is a principal in the White Plains, New York, office of Jackson Lewis, P.C. His legal practice is focused on ERISA litigation, labor and Multiemployer Pension Plan Amendments Act (MPPAA) arbitrations and is well grounded in his earlier experience as outside counsel to numerous union pension funds. During years of litigating cutting-edge ERISA issues before the U.S. Department of Labor, U.S. district courts, bankruptcy courts and courts of appeal on behalf of employers, plan sponsors and ERISA plan fiduciaries, Paul sometimes finds his own prior landmark decisions cited to him.

For Paul, MPPAA has all the excitement of a trial – it is an intricate and counter-intuitive statute. He has first chair experience in more than 40 jury trials and has handled hundreds of arbitrations and bench trials on all aspects of ERISA. ERISA knows no organizational bounds and so Paul has defended cases for clients representing many industry sectors, including life sciences, financial services, energy, hospitality, and construction.

Paul has served as litigation counsel for numerous multi-employer and single-employer employee benefit plans in ERISA matters, where he:

  • Devotes his practice mainly to the defense of employers, plan sponsors, fiduciaries, and financial institutions against claims brought under ERISA by benefit funds, plan beneficiaries, and the U.S. Department of Labor. He handles issues related to breach of fiduciary duties, excessive plan expenses, benefit entitlement issues retiree health benefits, and functional fiduciary liability
  • Successfully represents companies as plan sponsors against claims of participants and qualified beneficiaries for violations of COBRA
  • Defends employers that have been assessed withdrawal liability under MPPAA or have experienced increased liability due to the passage of the Pension Protection Act of 2006
  • Performs employee benefits due diligence for buyers or sellers in mergers and acquisitions transactions, filling a knowledge gap between labor and financial counsel, ensuring that buyers and sellers price-in or mitigate against ERISA violations and potentially millions of dollars in liabilities
  • Conducts comprehensive strategic reviews of clients’ current operations to avoid or mitigate against exposure to ERISA enforcement and risk of civil and criminal charges brought against company executives, principals, and trustees

In the last decade, he has developed a business model for use by businesses across a broad spectrum of ERISA issues from the beginning of the ownership of these companies to their sale. He also provides benefits guidance to Mergers and Acquisitions counsel in complex transactions.

Outside of work, Paul is an ardent Civil War and World War I buff. He expressly enjoys traveling to Europe and touring World War I battlefields.