The opinion of the court was delivered by: Judge James B. Zagel
MEMORANDUM OPINION AND ORDER
This is an appeal of an arbitration award under § 4221 of the Employee Retirement Income Security Act ("ERISA"). The Plaintiffs ("the Fund") were ordered by an Arbitrator Ira F. Jaffe (the "Arbitrator") to reduce its assessment of withdrawal liability of $3,530,405.00 to $2,437,401.30. The issues presented concern the determination of withdrawal liability, which is "the employer's proportionate share of the plan's 'unfunded vested benefits,' calculated as the difference between the present value of vested benefits and the current value of the plan'sassets." PBGC v. Gray & Co., 467 U.S. 717, 725 (1984). For the following reasons, the Fund's motion to vacate or modify the Arbitrator's award is denied.
The dispute in this case arose from a claim by the Fund for withdrawal liability from Defendant CPC Logistics, Inc. ("CPC"). The claim for withdrawal liability arose pursuant to the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA") which amended ERISA. It was undisputed that CPC or its members were contributing employers to the Fund for many years and permanently withdrew from the Fund as of February 4, 2005. There was also no dispute that withdrawal liability was due as a result of that complete withdrawal. The challenge here was to the amount of the withdrawal liability claimed by the Fund.
Arbitration hearings were held on September 2, 3, and 4, 2009. The Arbitrator issued his opinion and determined that (1) the determination of the withdrawal liability of CPC violated Section 4213 of the Act; (2) the withdrawal liability of CPC was to be redetermined on the basis of application of the Plan Actuary's best estimate (i.e. using the Segal Blend) throughout the period from 1985-2004 (based on the evidence, the redetermined amount is $2,437,401.30); and,(3) the Fund was obligated to apply a $487,500 credit as if that amount had been a partial prepayment of the redetermined amount of withdrawal liability.
There were two basic issues put forth at the arbitration. First, "whether the Fund properly determined the withdrawal liability of the Employer based, in part, upon use of an interest assumption that did not represent the "best estimate of anticipated experience under the plan" of the Plan Actuary, but rather was chosen and directed to be used by the Trustees." The secondinvolved the application of a $487,500 credit that was due to the Employer as a result of a prior settlement agreement. Only the first issue is before me now.
B. Calculating Unfunded Vested Benefit Liabilities The Fund in this case utilizes the statutory presumptive method or "20 pool" method of calculating and collecting withdrawal liability. This method measures the change in the Fund's overall unfunded vested benefit liabilities ("UVBs") from one plan year to the next and then allocates responsibility for each of those pools to employers who have withdrawn based upon the proportion of the withdrawing employer's contributions to the Fund to the total contributions to the Fund in the five year period preceding that pool. Each allocation portion of a pool is reduced by 5% each year that passes thereafter without a withdrawal by the employer.
Section 4213(b) allows funding assumptions and methods when calculating the withdrawal liability of a withdrawn employer, but does not necessarily require the use of such assumptions or methods. The Fund employed Plan Actuaries from the Segal Company to determine the UVBs that would be used in various calculations.
Generally, two reports are generated by a Plan Actuary. The first report sets out calculations required to determine whether employers are funding the Plan at required levels and is called a funding report. As the law requires, the Plan Actuary calculated the unfunded vested benefit UVB for purposes of the funding requirements imposed by the Internal Revenue Code ("Code") Section 412. The second report is called a withdrawal liability report. Both reports contain a calculation of the plan's UVB, and many actuaries use the same assumptions and methods in calculating the UVB for both reports, and as a result, produce the same UVB. The Fund's Actuary, however, did not use the same method to calculate each UVB. Instead, the Actuarial Firm for the Fund used an independent approach when calculating the UVB for withdrawal liability. This method is called the Segal "Blend" approach. The Segal Blend always represented the "best estimate" of the Plan Actuaries with respect to withdrawal liability determinations. The parties do not dispute that the Segal Blend approach yields the "best estimate" with respect to withdrawal liability.
In the wake of the Supreme Court's ruling in Concrete Pipeline and Products of Cal., Inc. v. Construction Laborers Pension Trust for S. Cal., 508 U.S. 602 (1993), Segal issued a Guidance Memorandum discussing, among other things, whether it was permissible for an actuary to have different numbers for the UVB in the funding and withdrawal liability reports. As a result of this Memorandum, Segal was directed by the Fund's Trustees to modify the steps used to determine the UVB for withdrawal liability. The actuary would calculate the UVB using the Blend assumptions, and then determine the UVB using the funding report assumptions. The latter UVB would set an upper limit for the UVB. In a year where a UVB value was capped, the assumptions used in both the funding report and the withdrawal liability report would be the same. However, the assumptions used to generate this number would differ from assumptions that would be used to calculate the Segal Blended UVB which would have served as the "best estimate" for withdrawal liability. In other words, if the UVB calculated for the funding report was lower than the UVB calculated for the withdrawal liability reports using the Segal Blend method, the calculation utilizing the Segal Blend method would be disregarded, and replaced with the funding report UVB (which unutilized different assumptions and methods).
The Trustee's 1997 resolution*fn1 stated that:Effective for all withdrawals occurring after March 31, 1996, the value of unfunded vested benefits or purposes of withdrawal liability shall be based upon the actuarial assumptions and methods that have been established for determining withdrawal liability [the Segal approach], provided that the value of unfunded vested benefits for purposes of withdrawal liability shall not be higher than the value determined based on the actuarial assumptions and asset valuation methods effective for the same plan year that have been adopted for purposes of determining on-going Plan funding in accordance with Internal Revenue Code Section 412.
CPC withdrew from the Fund as of February 4, 2005. In accordance with the Act, the withdrawal liability of CPC was based upon the unfunded vested benefits liabilities of the Fund as of the end of the plan year preceding the date of withdrawal, in this case, the 2004 plan year. To assess withdrawal liability, the pools prior to the 1996 plan year were calculated based upon use of the Segal Blend. In accordance with the resolution, the withdrawal liability pools were calculated differently during the periods from 1996-99 and from 2001-03 than during the period prior to 1996 and subsequent to 2003. The pools from the 1996-99 plan years and the 2001-03 plan years were calculated using the plan's funding interest assumption, and not the Segal Blend. The pool for the 2004 plan year was calculated using the Segal Blend, but was distorted by the change in interest rate assumption. The effect of these determinations by the Trustees reduced the amount of those pools and any resulting ...