U.S Supreme Court
To ease compliance challenges and administrative complexity, nonprofit organizations are increasingly considering multiple employer plans (MEPs). Lately, some of these plans have been fraught with ERISA lawsuits.
Last week, Pentegra Retirement Services, a leading retirement plan provider to banks, agreed to settle its multiemployer 401(k) case that alleged the company charged unreasonable fees and engaged in prohibited transactions for a near-record $48.5 million.
Now, the Supreme Court has announced it will decide another multiple employer plan case involving a split between two Circuit Courts of Appeal, at the urging of the Department of Justice over the appropriate way to calculate participating employers’ allocable share of withdrawal liability.
Specifically, the high court will address whether ERISA's requirement to compute M & K Employee Solutions’ withdrawal liability "as of the end of the plan year" allows plans to use actuarial assumptions adopted after the end of the year, but based on information available at the end of the year. The case could affect most of the nation’s 1,400 multiemployer plans.
The case, M&K Employee Solutions, LLC et al. v. Trustees of the IAM Nat’l Pension Fund, stems from a situation where a plan lowered its discount rate after the end of the plan year, and then used the new, lower rate to calculate the employer's withdrawal liability.
In 2018, M&K withdrew from the IAM National Pension Fund, a multiemployer defined benefit pension fund for members of the International Association of Machinists and Aerospace Workers union, therefore, the Measurement Date for determining M&K’s withdrawal liability was December 31, 2017. The discount rate used to value the plan’s unfunded vested benefits that was in effect on the Measurement Date was 7.5%.
However, the plan’s actuary lowered the discount rate to 6.5% and used that rate to value the plan’s unfunded vested benefits. Then the actuary assessed withdrawal liability for the 2018 plan year using the new rate. This discount rate reduction increased the plan’s unfunded vested benefits by over 600%, dramatically increasing the employer’s withdrawal liability.
In 2020, the Second Circuit Court of Appeals held that the actuarial assumptions must be adopted on or before the measurement date. In 2024, the DC Circuit Court of Appeals ruled that the actuary may change assumptions after the measurement date.
The employer then appealed the case to the Supreme Court, whose decision will bring clarity to this issue and potentially impact the way multiple employer plans calculate withdrawal liability in the future.
Related: Are 401(k) lawsuits driving more employers toward multiple employer plans or pooled employer plans?
The Supreme Court will now decide this case sometime during the term that begins in October.
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