Seventh Circuit Upholds Arbitrator’s Reduction of Withdrawal Liability

An arbitrator's decision to significantly reduce the amount of withdrawal liability assessed against an employer that had withdrawn from a multiemployer pension plan was affirmed in a recent opinion from the Seventh Circuit.

In 2005, the employer withdrew from a multiemployer pension plan and, because the plan was substantially underfunded, the employer was assessed a withdrawal liability of more than $3.4 million. The employer contested the amount of the liability through arbitration proceedings. It argued that the assumptions and interest rates used by the plan's trustees were unreasonable, causing an unwarranted increase in the amount assessed upon the withdrawal. The arbitrator agreed, and ruled that the plan had overassessed the amount of the withdrawal liability by more than $1 million.

The plan appealed the arbitrator's decision to the U.S. District Court for the Northern District of Illinois, which upheld the decision. The plan then appealed to the Seventh Circuit. In a colorful opinion--for ERISA lawyers, at least — noting the complexity of this area of the law, Judge Posner found that the interest rates used by the plan's trustees to determine the employer's withdrawal liability were different from the interest rates that were the "best estimate" of the plan's actuaries. As a result, the amount of the assessment was overstated. The Seventh Circuit rejected the plan's argument that the interest rates it used were protected by a statutory safe harbor, and affirmed the district court's ruling.

Employers that are subject to withdrawal liability after exiting a multiemployer pension plan should be careful to examine the assumptions underlying the assessment, keeping in mind strict statutory deadlines for challenging the amount assessed.

For more information read Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Pension Fund v. CPC Logistics, Inc..