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CCH® PENSION — 03/19/12

Plan's choice of interest rate to calculate withdrawal liability not an abuse of discretion

A multiple-employer pension plan's board did not abuse its discretion when it used what an employer described as an "unreasonably low" interest rate to calculate the amount of the employer's withdrawal liability, the U.S. Court of Appeals in San Francisco (CA-9) has ruled.

Contested amount

At the district court level, the employer argued that the board, when calculating the amount of withdrawal liability, erred in three respects. First, it suggested that the interest rate assumption used to calculate liability was "unreasonably low" and indeed was selected to exaggerate the extent of the employer's liability. Second, according to the employer, the board improperly included in its calculation an enhanced benefit offered to participants who experienced "job elimination." Finally, it included amounts owed to missing participants in its calculation. The district court held the plan's board did not abuse its discretion.

No abuse of discretion

The appellate court affirmed the lower court's ruling. With respect to the interest rate assumptions, the district court had noted that the PBGC had expressly rejected the employer's contention that the PBGC actuarial assumptions used by the plan do not accurately reflect market annuity pricing for terminating plans. The appellate court found the record supported this conclusion and rejected the employer's contention that the interest rate used was too low.

Regarding the job elimination benefit, it was not improper for the board to consider this, even though due to clerical errors the benefit had for a time not been included in plan documents. At least one participant received the benefit during the time it was missing from plan documents.

Finally, the court rejected the employer's assertion that missing participants should be presumed dead for purposes of calculating withdrawal liability. ERISA Reg. §4050.2 provides that in the absence of proof of death, missing individuals are presumed to be living. The plan board regularly utilized a commercial locator service to search for missing participants.

Source: Plan Board of Sunkist Retirement Plan v. Harding & Leggett, Inc. (CA-9).

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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