Pension v. ConvergeOne Dedicated Services

Background

The Pension, Hospitalization & Benefit Plan of the Electrical Industry is a multiemployer pension plan under the Employee Retirement Income Security Act (ERISA). ConvergeOne Dedicated Services, LLC was formerly a signatory to a collective bargaining agreement requiring contributions to the Pension Plan. ConvergeOne completely withdrew from the plan during the plan year ending September 30, 2021.

The Pension Plan notified ConvergeOne that it owed $7,843,704 in withdrawal liability. Withdrawal liability is the amount an employer may be required to pay a multiemployer pension plan after withdrawing. The Pension Plan’s actuary, Segal Group, Inc., calculated the amount using the “Segal Blend” method. That method combined an interest rate based on the plan’s expected investment returns with interest rates published by the Pension Benefit Guaranty Corporation for valuing benefits in mass-withdrawal situations.

ConvergeOne objected to the assessment and requested a recalculation. It argued that the actuary had improperly used a discount rate different from the rate used to estimate the Pension Plan’s expected return on its assets. ConvergeOne then demanded arbitration under ERISA.

Arbitration and Motions

On September 11, 2023, the arbitrator concluded that the withdrawal-liability assessment was unreasonable and contrary to 29 U.S.C. § 1393(a)(1). That provision requires the actuarial assumptions and methods, considered together, to be reasonable and to provide the actuary’s best estimate of the plan’s anticipated experience. The arbitrator directed the Pension Plan to redetermine ConvergeOne’s liability using the actuary’s 7.25% best estimate of the Pension Plan’s expected return on its assets.

The Pension Plan filed this action to vacate, or set aside, the arbitration award. ConvergeOne moved to confirm the award. Both parties moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). The parties did not dispute the arbitrator’s factual findings and agreed that the court should review the arbitrator’s legal conclusions independently.

Court’s Analysis

Judge Koeltl held that the arbitrator’s decision survived both independent review of legal conclusions and review for clear error. The court explained that the alternative method under 29 U.S.C. § 1393(a)(2) was unavailable because no applicable Pension Benefit Guaranty Corporation regulation was in effect when the Pension Plan determined ConvergeOne’s liability. The Pension Plan therefore had to comply with the “best estimate” standard in § 1393(a)(1).

The actuary testified that the Pension Plan’s expected return on its assets was 7.25%, but used the Segal Blend method instead of using that rate exclusively. The actuary acknowledged that including the Pension Benefit Guaranty Corporation rates meant the calculation was not entirely based on the Pension Plan’s expected return on its assets. The court noted that the Pension Plan did not hold more conservative investments and did not intend to acquire them.

The court found that the blended method relied on assumptions that did not reflect the Pension Plan’s particular characteristics or actual investments. It relied on decisions from the Sixth, D.C., and Ninth Circuits addressing similar use of conservative or Pension Benefit Guaranty Corporation rates. The court also explained that using different interest rates for minimum-funding and withdrawal-liability purposes is not automatically unlawful, but the rates used for withdrawal liability must still reflect the plan’s anticipated experience. The court rejected the Pension Plan’s reliance on the Supreme Court’s decision in Concrete Pipe & Products, Inc. v. Construction Laborers Pension Trust for Southern California because that decision did not permit assumptions disconnected from the plan’s anticipated experience.

Disposition

The court granted ConvergeOne’s motion for judgment on the pleadings confirming the arbitration award. It denied the Pension Plan’s cross-motion to vacate the arbitrator’s decision. The Clerk was directed to enter judgment confirming the award and close the open motions.