Is the Segal Blend a Legally Permissible Assumption for Withdrawal Liability?

By Bolton Retirement October 17th, 2019

This is a question that has been considered in various court cases.  The primary case is the New York Times Company (NYT). v. Newspaper & Mail Delivers’ – Publishers’ Pension Fund (the Fund).  At issue is whether an interest rate assumption that is lower than what is used to determine minimum funding is appropriate for determining a withdrawing employer’s liability.  The Segal Blend uses a blend of a plan’s assumed interest rate for minimum funding and rates published by the Pension Benefit Guaranty Corporation (PBGC), which are typically lower than the rate used for minimum funding.  NYT contested the use of an interest rate assumption based on the Segal Blend and the issue went before an arbitrator.  The arbitrator upheld the use of the Segal Blend.  Not satisfied with that result, NYT brought the matter before the U.S. District Court for the Southern District of New York (the NY District Court).

During arbitration, the arbitrator noted that the Segal Blend was not prevented as a matter of law.  Also, since the Segal Blend had been used for withdrawal liability historically, the arbitrator ruled that it was not being used as a scheme to take advantage of NYT and that NYT was not unfairly penalized.

At the district court level, the main argument made in support of the Segal Blend is that employers who withdraw from a multiemployer plan face less risk than do employers who remain in the plan.  The liability of withdrawn employers, such as NYT, becomes fixed.  If the assets of the plan underperform, withdrawn employers are not required to pay additional contributions.

The Fund’s actuary, however, testified that an interest rate assumption of 7.5% (the assumed rate used for minimum funding) was her best estimate of anticipated experience under the plan.  Further, she stated that the Segal Blend was independent of the Fund’s actual portfolio of assets.

After hearing testimony, the NY District Court reversed the arbitrator’s approval of the Segal Blend.  The NY District Court noted that the arbitrator did not consider if the Segal Blend was a reasonable best estimate, but only that it was not prevented as a matter of law.  The NY District Court ruled that the actuary’s testimony of 7.5% being her best estimate of anticipated experience under the plan, combined with the Segal Blend not being related to the Fund’s actual portfolio of assets create “a definite and firm conviction that a mistake has been made” in accepting the Segal Blend.

The Fund appealed this ruling which sent the case to the U.S. Court of Appeals for the Second Circuit.  The case was settled on September 16, 2019 leaving the ruling from the NY District Court in tact.  However, the District Court of New Jersey upheld the use of the Segal Blend method in the case of Manhattan Ford Lincoln v UAW Local 259 Pension Fund.  This ruling was made subsequent to the NY District Court  ruling in the NYT case.  This means that there is no clear guidance on whether the Segal Blend method will hold up in future court cases.  We expect to see more legal challenges to the Segal Blend method in the future.

Bolton will continue to monitor these cases and we will update this information as further developments occur.  For more information, please contact Tim Boles at 443-573-3938.