The 6th U.S. Circuit Court of Appeals has weighed in on one case in which an employer that withdrew from a multiemployer pension plan challenged the use of the so-called “Segal Blend” when calculating the amount of withdrawal liability the member employer owed the plan.

In the case Sofco Erectors Inc. v. Trustees of the Ohio Operating Engineers Pension Fund, the appellate court noted that the interest-rate assumption is critical in withdrawal-liability calculations. A lower interest rate garners a higher unfunded liability. Because employers withdrawing from funds must pay a proportionate amount of the unfunded liability, a lower interest-rate assumption results in higher withdrawal liability. The opposite is true when a higher interest rate is used.

In the Sofco Erectors situation, the multiemployer plan’s actuary used a 7.25% growth rate on assets for minimum funding purposes. But for withdrawal-liability purposes, the actuary used the “Segal Blend,” which takes the interest rate used for minimum-funding purposes and “blends” it with the Pension Benefit Guaranty Corporation (PBGC)’s published interest rates on annuities.

The 6th Circuit explained that PBGC publishes interest rates on annuities because, in certain circumstances, pension funds are required to purchase annuities to cover promised benefits. In the Sofco Erectors situation, the PBGC rates were in the range of 2% to 3%.

An arbitrator upheld the actuary’s…

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