Multiemployer Plan Withdrawal Liability: DC Circuit Says Discount Rate Used for Withdrawal Liability Must be Similar to Discount Rate Used for Funding

On July 8, 2022, a three-judge panel of the DC Circuit Court of Appeals reversed the decision of a lower court in United Mine Workers of America 1974 Pension Plan v. Energy West Mining Company, ordering that the discount rate used to calculate multiemployer pension plan withdrawal liability must be similar to the discount rate the Enrolled Actuary uses in performing funding calculations for the plan. In doing so, the DC Circuit joins the Sixth Circuit (see our article Multiemployer plan withdrawal liability: Sixth Circuit strikes down “Segal Blend”) in coming to this conclusion. This is welcome news for contributing employers that withdraw from multiemployer pension plans.


Multiemployer pension plans are plans to which multiple employers (usually in the same industry) contribute, subject to one or more collective bargaining agreements. Oversimplifying somewhat, when an employer stops contributing to a multiemployer plan, it is treated as having “withdrawn” from the plan, and if at that time the plan is not fully funded, the withdrawing employer must pay the plan a “withdrawal liability” representing its share of the plan’s unfunded vested benefit (UVB) liability. The determination of a plan’s UVB liability is a complex actuarial calculation requiring the actuary to make a number of assumptions. But, as the Court noted multiple times in its opinion (citing Combs v Classic Coal Corporation), “[T]he discount rate is the weightiest assumption in the overall withdrawal liability calculation.”

In simple terms, the lower the discount rate, the higher the UVB liability and (thus) the higher the employer’s withdrawal liability. In Energy West, the plan’s Enrolled Actuary used what are commonly known as “PBGC rates” to determine Energy West’s withdrawal liability. PBGC rates, which are a proxy for the rates used by insurance companies to settle a liability, vary from month to month; at the time of Energy West’s withdrawal, they were 2.71% for the first 20 years and 2.78% thereafter. For purposes of the plan’s (general) funding calculations, however, the actuary used a 7.5% discount rate.

As the Court noted, the difference between the PBGC rates and the plan’s funding rate is nearly 500 basis points. That difference has a significant effect on withdrawal liability calculations: Energy West’s withdrawal liability calculated using PBGC rates was approximately $115 million; using the plan’s 7.5% funding discount rate, it was approximately $44 million.

Statutory guidance

The statutory language providing the “rules” for how the actuary is to determine actuarial assumptions for the two purposes here – withdrawal liability and funding – are similar but not identical. For withdrawal liability purposes, an actuary must use assumptions “which, in the aggregate, are reasonable (taking into account the experience of the plan and reasonable expectations) and which, in combination, offer the actuary’s best estimate of anticipated experience under the plan.” (Emphasis added.)

For funding purposes, the actuary must use assumptions “each of which is reasonable (taking into account the experience of the plan and reasonable expectations), and which, in combination, offer the actuary’s best estimate of anticipated experience under the plan.” (Emphasis added.)

Holding – withdrawal liability assumptions must be similar to plan funding assumptions

In Energy West the court held that, if the assumptions used in the withdrawal liability calculation are to reflect anticipated experience under the plan, the discount rate should reflect the plan’s actual investments. Under this standard, using PBGC rates to determine withdrawal liability would not be appropriate, as they reflect the underwriting practices of insurance companies in pricing annuities and not the investments in any particular plan.

The Court rejected the plan’s argument that this was the plan’s last chance to get money from the withdrawing employer and thus was a settlement calculation. In that context (the plan argued), the appropriate discount rate should reflect rates used in settlement calculations.

Consistent with prior case law, including Concrete Pipe, the Court held that, given the similarity of statutory language on withdrawal liability and funding, the discount rates for the two calculations must be similar.

What this means for contributing employers

As noted, the discount rate used to calculate withdrawal liability can have a (very) significant effect on the withdrawing employer’s liability. In this case using the plan funding rate (7.5%) cut the employer’s liability by more than half. In other cases with which we are familiar, withdrawal liability could be reduced to zero if calculated using the funding interest rate.

This now makes two Circuits (the Sixth Circuit and the DC Circuit) that have ruled similarly on this critical issue. Certainly, for withdrawal liability calculations governed by either of those two circuits, this is good news – withdrawing employers must be treated the same or similarly as those employers that continue to contribute to multiemployer plans.

In the other circuits, the law remains less clear. We are, however, likely to get further clarity soon. A third multiemployer plan withdrawal liability discount rate case is pending in the Ninth Circuit.

In the meantime, PBGC has said that it is working on regulations on the assumptions to be used in the determination of withdrawal liability. ERISA provides that an alternative to using assumptions that are the actuary’s best estimate of anticipated experience under the plan is to use assumptions promulgated in regulations by the PBGC. In the more than 40 years since the Multiemployer Pension Plan Amendments Act, PBGC has declined to provide such regulations.

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We will continue to follow this issue.

This is a publication of O3 Plan Advisory Services. If you have any comments, or have questions about regulatory developments, please contact your relationship manager or Mike Barry at    The information, analyses and opinions set out herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. Nothing herein constitutes or should be construed as a legal opinion or advice. You should consult your own attorney, accountant, financial or tax advisor or other planner or consultant with regard to your own situation or that of any entity which you represent or advise.   Information set out or referred to above has been obtained from sources believed to be reliable. However, neither O3 Plan Advisory Services nor any of its affiliates has verified the accuracy or completeness of any such information. All information is provided “as is” and O3 Plan Advisory Services and its affiliates expressly disclaim all express and implied warranties regarding the information. Neither O3 Plan Advisory Services nor any of its affiliates shall have any liability for any use of the information set out or referred to herein.