• The Supreme Court of the United States will decide how pension plans must set the interest rate assumptions used to calculate how much an employer owes if it withdraws from a multiemployer pension plan.
• The outcome will likely affect employers’ timing considerations regarding withdrawal from their multiemployer pension plans, as the differences could amount to millions of dollars, depending on the Court’s decision.

In 2018, M&K Employee Solutions, LLC withdrew from its multiemployer pension plan with IAM National Pension Fund. To calculate the plan’s underfunding, the pension fund’s actuary applied a 6.5 percent interest rate, adopted in January 2018, resulting in an amount exceeding $3 billion for the 2017 plan year. This figure is six times higher than it would have been had the actuary used the 7.5 percent interest rate that was in effect at the end of 2017. Consequently, M&K incurred an additional charge of $4,360,701 due to the lower interest rate.

When interest rates fall, the expected future value of pension plan assets declines. As a result, more money must be contributed now to ensure that promised benefits can be paid out in the future. This situation increases both the risk and extent of underfunding within the pension plan. Consequently, an employer’s potential withdrawal liability, the amount owed if they exit the plan, also rises. Employers that remain in the plan may face higher required contributions to keep the plan adequately funded.

In the...

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