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The regulatory agenda issued by the Pension Benefit Guaranty Corporation in July 2026 includes finalization of its proposed rule on the determination of multiemployer plan withdrawal liability valuation interest rates. In this article, we review this issue and how PBGC’s proposed rule could adversely change outcomes for employers withdrawing from multiemployer plans.
There has been a developing controversy under the Multiemployer Pension Plan Amendments Act (MPPAA) as to how – for purposes of calculating a withdrawing employer’s withdrawal liability – a plan’s unfunded vested benefit liabilities (UVBs) should be determined. Critically, what interest/discount rate should be used to determine the amount of those liabilities? Differences between the plan’s funding interest rate assumption and withdrawal liability interest rate assumption may result in extremely significant differences in UVBs and therefore in withdrawal liability.
This issue matters for four types of readers: (1) employers that have recently withdrawn from multiemployer pension plans; (2) employers that currently contribute to multiemployer pension plans; (3) companies that often acquire employers that fall into group (1) or (2); and (4) advisors to employers/companies in group (1), (2), or (3).
Current statutory rule
ERISA section 4213 states that withdrawal liability shall be determined based on:
(1) actuarial assumptions and methods 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, or
(2) actuarial assumptions and methods set forth in the [PBGC’s] regulations for purposes of determining an employer’s withdrawal liability.
Thus far, the PBGC has not published final regulations under clause (2) (above), and controversy over what interest rate to use has been resolved by courts interpreting clause (1). In 2022, however, PBGC finally, and after 42 years, proposed a regulation under clause (2), about which we say more below.
Typically, in cases in which withdrawing employers dispute the valuation interest rate used by the plan, there are one or more of the following rates “in play:”
The plan funding rate. Unlike single employer plans, multiemployer plans are, for funding purposes, required to value plan liabilities based on an expected long-term rate of return on plan assets, typically resulting in a higher valuation rate than is used for single employer plans. Many plans use a rate between 7%-7.5%.
PBGC (ERISA section 4044) rates. PBGC publishes rates to be used (among other things) in single employer plan distress terminations and in multiemployer plan “mass withdrawals.” For such events after July 31, 2024, PBGC uses a yield curve for purposes of this valuation – the current yield curve shows rates from 4.75% at the short end (6 or fewer months) to 5.66% at the long end (30 years).
The “Segal Blend.” In many cases, the plan will value liabilities for purposes of calculating an employer’s withdrawal liability based on what we think of as an effective interest rate that is developed from 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.
Higher rates = lower liabilities = lower withdrawal liabilities. So, withdrawing employers generally prefer a calculation using the (higher) plan funding rate, and plans/plan trustees often prefer the lower rates such as PBGC rates or the Segal Blend. (Note that there have been times when using the PBGC rates or the Segal Blend produced lower withdrawal liabilities than using the funding interest rate, but that has rarely, if ever, been the case in recent years.)
In the absence of a PBGC regulation, the courts have often sided with withdrawing employers where multiemployer plans have sought to use a withdrawal liability valuation interest rate that is considerably lower than, e.g., the interest rate the plan uses for funding purposes. In Sofco Erectors, Inc. v. Trustees of the Ohio Operating Engineers Pension Fund, the Sixth Circuit ruled that the use of the Segal Blend violated ERISA. In United Mine Workers of America 1974 Pension Plan v. Energy West Mining Company, the DC Circuit found that the use of PBGC rates violated ERISA. In both cases, the courts noted that neither the plans (nor their actuaries) established that PBGC rates were reflective of anticipated future experience under the plan.
In a 2022 decision issued after the PBGC had proposed its regulation, the Ninth Circuit Court of Appeals ruled, in GCIU – Employer Retirement Fund; Board of Trustees of the GCIU – Employer Retirement Fund v MNG Enterprises, Inc., that, in the absence of a final PBGC regulation, the plan had to use a valuation interest rate that represented the “best estimate” of “expected returns of the plan’s assets and experience.”
Finally, on May 21, 2026, a unanimous Supreme Court, in M & K Employee Solutions, LLC v. Trustees of the IAM National Pension Fund, held that a multiemployer plan could calculate withdrawal liability based on a valuation interest rate adopted after the statutory measurement date for those liabilities. The Court’s decision was limited to the timing issue, but the interest rate adopted by the plan in this case was lower than the rate used for the prior year’s valuation by enough to make a very significant difference in the amount of withdrawal liability owed by M&K.
In October 2022, PBGC proposed regulations specifying actuarial assumptions for calculating withdrawal liability (as provided under clause (2) above). Paraphrasing and oversimplifying, the proposed regulation provides that the actuarial assumptions other than the valuation interest/discount rate used to determine withdrawal liability must be reasonable and, in combination, offer the actuary’s best estimate of anticipated experience under the plan. For the interest/discount rate assumption, however, the actuary may use any rate in the range from the plan funding rate to PBGC rates, even if, e.g., using PBGC rates would render the assumptions to be “unreasonable” in the aggregate. And in their request for comments, they asked whether the top of that range, i.e., a rate equal to the funding interest rate, should be lowered to a rate equal to the funding interest rate minus a margin of some sort.
To be clear: this proposal would allow use of an interest rate (the PBGC rate) that is lower (in some cases significantly lower) than the rate generally being allowed by courts, allowing plans to increase the amount of withdrawal liability a withdrawing employer could be required to pay.
In its current (July 2026) agenda item on this regulatory project, PBGC states:
The rulemaking is needed to clarify that a plan actuary’s use of 4044 rates represents a valid approach to selecting an interest rate assumption to determine withdrawal liability. The rulemaking would typically reduce or eliminate the cost-shifting effects due to impediments to the actuary’s use of 4044 rates. PBGC plans to publish a final rule that responds to the public comments received on the proposed rule.
Just because an item is included in PBGC’s regulatory agenda does not mean that PBGC will actually act on it. And some have speculated that PBGC may, in the end, just withdraw its proposal.
It’s difficult to say exactly what all this means for employers that did, currently do, or might in the future be contributing employers to multiemployer pension plans. If we were to use the proposed regulation as an indicator, PBGC intends to allow plans and their actuaries to dissociate their valuation interest/discount rate assumptions for withdrawal liability calculations from those for minimum funding, despite the very distinct similarity in statutory language. Some courts, on the other hand, view that similarity as a basis for disallowing the use of a different rate for calculating withdrawal liability.
That’s a great question. Let’s illustrate with a purely hypothetical, but not unrealistic, example.
| Interest Rate Basis | Funding = 7.5% | Plan Termination = 5.25% |
|---|---|---|
| Vested Benefit Liability | $1,000,000,000 | $1,370,000,000 |
| Plan Assets | $900,000,000 | $900,000,000 |
| UVB | $100,000,000 | $470,000,000 |
| Employer’s Share | 10% | 10% |
| Withdrawal Liability | $10,000,000 | $47,000,000 |
This example, while realistic, might be extreme in its leverage, but it does serve to illustrate a point. Withdrawal liability assessments can be very highly leveraged. When the actuary’s interest rate assumption changes, the value of assets does not change, but the value of the liabilities does. In the example above, a nearly 40% increase in liabilities would result in withdrawal liability increasing almost five-fold. What this also shows is that an employer considering withdrawing from a multiemployer plan should not get a sense of comfort simply because the plan has been certified as being in the so-called “green zone.”
Employers that have recently withdrawn from multiemployer pension plans and have not yet been assessed a withdrawal liability (but expect to be assessed) should be wary and look carefully at the calculations behind the assessment when they receive it. What interest rate was used? Was it something like the PBGC rate of the Segal Blend? Sponsors may want to consult their advisers/counsel on this issue. If you wish to challenge the assessment of withdrawal liability, that process generally must begin within 60 days of the date of notification.
Unlike in a single employer plan, the actuary in a multiemployer plan works for the Trustees (or, in the best of cases, plan participants), but is not engaged by a withdrawing employer. Such employers might consider engaging an actuary working specifically for them.
Employers that have already received an assessment have a more significant challenge. The 60-day clock is already ticking and might have expired. Consult with counsel to assess your options.
Employers that currently contribute to multiemployer plans might have considered the possibility of withdrawing either by choice or somewhat inadvertently at some point in the future. We can’t be certain how the whole web of litigation and PBGC regulation will play out. In any event, the court situation is currently somewhat favorable for withdrawing employers, but the regulatory position of PBGC has not been. Be sure that you understand this evolving situation before making any decisions.
Some companies, including many private equity firms, often acquire companies that contribute to multiemployer plans. The potential withdrawal liability in multiemployer pensions is often an important factor in evaluating target company value and in deal negotiations and, similarly, could be an impediment to eventual exit.
If outcomes of litigation over the last several years are the determining factor, then withdrawal liability calculations might be performed using assumptions generally consistent with plan funding. If PBGC’s 2022 proposed regulation is finalized more or less as-is, and courts eventually give deference to that regulation, we expect many multiemployer plan actuaries will consider the use of interest rates that are the same as or much closer to PBGC rates than they are to funding interest rates. This, of course, will vary from plan to plan and actuary to actuary, but acquirers should be prepared for the possibility.
We will continue to follow this issue.
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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 mbarry@octoberthree.com.
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