Multiemployer plan withdrawal liability: Sixth Circuit strikes down “Segal Blend”

In a September 28, 2021, decision, a three-judge panel of the Sixth Circuit Court of Appeals upheld a lower court decision that ERISA prohibits a multiemployer plan from using the “Segal Blend” to determine the liability to the plan of a withdrawing employer. This is the highest court to address this issue.

In a September 28, 2021, decision, a three-judge panel of the Sixth Circuit Court of Appeals upheld a lower court decision that ERISA prohibits a multiemployer plan from using the “Segal Blend” to determine the liability to the plan of a withdrawing employer. This is the highest court to address this issue.

This result means, in the Sixth Circuit at least, that in many cases the withdrawal liability that a multiemployer plan may assess against withdrawing employers may be significantly lower than it has been in the past. Thus, this decision may have a significant effect on multiemployer plan withdrawal liability exposure, with implications both for ongoing management and company valuation.

In this article, we begin with a brief discussion of why this case is significant for employers generally. We then provide some background on the issues and the case and then briefly discuss the court’s analysis. We conclude with some takeaways.

Why calculation of withdrawal liability matters to employers

Some employers provide retirement benefits for many of their employees through one or more multiemployer (“Taft-Hartley”) plans, and that benefit format represents, in effect, a strategic “fact of life” for them. But there are also employers that maintain their own (“single employer”) retirement plan for the vast majority of their employees but who nevertheless make contributions to one or more multiemployer plans for certain discrete groups of unionized employees (e.g., their loading dock workers).

When an employer withdraws from one of these plans (e.g., when the union is decertified), it will generally trigger “withdrawal liability” under the multiemployer plan if the plan’s actuary determines that there are not enough assets in the plan to pay for the vested benefit liability, i.e., there is an unfunded vested liability (UVB). The amount of that UVB, and the withdrawing employer’s withdrawal liability, can be shockingly large. And the calculation of that liability has for some time been a subject of significant contention between withdrawing employers and the plans (and the unions backing the plans).

Typically, the key factor affecting the size of the withdrawal liability being charged to a withdrawing employer is the interest rate used to calculate the present value of plan liabilities. In this regard, many actuaries in determining withdrawal liability on behalf of plans use the “Segal Blend” (discussed in detail below) to calculate liabilities – generally a significantly lower effective interest rate than the plan uses to calculate liabilities for ongoing funding purposes. Many withdrawing employers have disputed the use of this rate, including in federal court.

In Sofco Erectors, Inc. v. Trustees of the Ohio Operating Engineers Pension Fund, the Sixth Circuit struck down the use of the Segal Blend and instead required the use of the (much higher) 7.25% interest rate used for plan funding.

While it is conceivable that other circuits may reach a different conclusion, this decision represents a major setback for multiemployer plans seeking to impose higher withdrawal liability on withdrawing employers.

Background – multiemployer plan withdrawal liability and the valuation of plan liabilities

Employer liability for a “withdrawal” from a multiemployer plan may arise in a number of different situations – e.g., after a plant shutdown or a reduction in force or even a change in union representation. And often the key determinant of the size of that liability will be the discount rate used by the plan’s actuary to value plan liabilities. A lower rate increases the size of plan liabilities, plan underfunding, and (ultimately) the amount of underfunding the withdrawing employer is responsible for (i.e., its withdrawal liability).

Multiemployer plans (and their actuaries) use a number of different interest rate bases for determining withdrawal liability, but the most common are the plan funding rate, PBGC rates, and the Segal Blend, and those were the three types of rates the Sofco court discussed.

The plan funding rate. Unlike single employer plans, multiemployer plans are for funding purposes required to value plan liabilities based on an expected return on plan assets, typically resulting in a higher valuation rate than is used for single employer plans. In the plan in dispute in Sofco, the plan’s actuary used a 7.25% plan funding rate.

PBGC rates. The Pension Benefit Guaranty Corporation publishes rates to be used to (among other things) in single employer plan distress terminations and in multiemployer plan “mass withdrawals.” These rates have been quite low recently – between 1.5% and 2.5% during 2021.

The Segal Blend. In many cases, the plan will value liabilities for purposes of calculating an employer’s withdrawal liability based (in effect) on a blend of the funding rate and the PBGC rates, called the “Segal Blend.” (Technically, the “Segal Blend” is a blend of liability determinations, not a blend of rates, but it has a similar effect.) Under this approach, funded liabilities are valued using PBGC rates and unfunded liabilities are valued using the plan funding rate.

Procedure and presumptions

The procedure for an employer challenge of a plan’s determination of withdrawal liability is somewhat complicated. The employer must, among other things, submit to arbitration, before it can sue in federal court. In this case, the arbitrator upheld the plan’s use of the Segal Blend. The district court (in effect) reversed this decision, finding that the use of the Segal Blend violated ERISA and that the plan should recalculate the withdrawal liability using the plan’s funding rate.

In this process of arbitration-and-court-review, there are a set of presumptions that (in effect) favor the plan’s determination of liability and the arbitrator’s decision. As described by the Sixth Circuit:

The arbitrator must presume that the plan sponsor’s factual determinations are correct unless the employer disproves a determination by a preponderance of the evidence. … To challenge an actuary’s calculation of withdrawal liability, the employer must show “that the actuarial assumptions and methods used in the determination were, in the aggregate, unreasonable (taking into account the experience of the plan and reasonable expectations), or the plan’s actuary made a significant error in applying the actuarial assumptions or methods.” … On review in federal court, “there shall be a presumption, rebuttable only by a clear preponderance of the evidence, that the findings of fact made by the arbitrator were correct.”

These rules provide the framework for the Sixth Circuit’s decision in this case.

Sixth Circuit finds use of Segal Blend violates ERISA

In Sofco, the Sixth Circuit found that in determining withdrawal liability ERISA requires that:

[T]he actuary must use “actuarial assumptions and methods, 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 in the original.)

The court held that this rule is, in effect, a statutory, substantive requirement as to the standard that the actuary will use to derive the withdrawal liability valuation interest rate.

The court found, with respect to the PBGC rates used as part of the Segal Blend, that:

PBGC rates are used to determine the present value of future liabilities for plans that are terminated by a “mass withdrawal,” which occurs when all employers completely withdraw from a multiemployer plan. [Reflecting the fact that] [w]hen a plan undergoes a mass withdrawal, the plan must purchase annuities to cover the promised benefits unless the plan assets can be distributed “in full satisfaction” of all covered benefits.

That is simply not the situation when a single employer withdraws from an ongoing multiemployer plan. “An actuary using the Segal Blend is factoring in an interest rate used for plans that essentially go out of business, even though these plans are neither going out of business nor required to purchase annuities to cover the departing employer’s share of vested benefits.”

Therefore, the use of the Segal Blend in the situation of a withdrawal by a single employer is, as a matter of law, prohibited by ERISA, because it is not an “estimate of anticipated experience under the plan.”


Many employers will have multiemployer plan exposure (e.g., with respect to certain collective bargaining units), even if a multiemployer plan is not the employer’s principal retirement benefits program. And a variety of events, planned and unplanned, may trigger assessment of employer withdrawal liability with respect to one of these plans.

The valuation interest rate used to value liabilities may be the most important factor in determining the amount of the employer’s withdrawal liability, or whether the employer owes any withdrawal liability at all.

Based on the Sofco decision, employers may seriously consider challenging multiemployer plan determinations of withdrawal liability on the basis of the Segal Blend. In this regard, in modeling the potential effects of a withdrawal from a plan that currently uses the Segal Blend, they should consider the potential effects of the plan changing from the Segal Blend to the plan funding rate (and thus, a lower ultimate withdrawal liability) in evaluating the risk presented by a withdrawal.

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We will continue to follow this issue.