The Pension Benefit Guaranty Corporation (PBGC) recently published a proposed rule prescribing the assumptions that actuaries may use in determining the liability owed by an employer who withdraws from a multiemployer plan. The primary focus of the rule is on the interest rate assumption. Litigation has been rising around the interest rate assumption used for withdrawal liability purposes, and the outcomes have been varied. This rule should go a long way toward alleviating such litigation going forward.

Actuaries typically have used one of three interest rate assumptions for withdrawal liability purposes. They are:

• The funding interest rate
• Interest rates prescribed under ERISA Section 4044 (PBGC rates)
• A blend of the above two interest rates

Interest rates fluctuate over time, but in recent years PBGC rates have been significantly lower than typical funding rates. The use of PBGC rates or a blended rate results in a higher employer withdrawal liability for withdrawing employers. This has led to employers contesting the use of a rate other than the funding rate.

The proposed rule would allow actuaries to use any interest rate between the PBGC rates and the funding rate. Actuaries using a rate outside of this range should consider revising their assumption in advance of a final rule.

Finally, the proposed rule addresses other actuarial assumptions used for withdrawal liability purposes by requiring that each assumption be reasonable, and that in combination they offer the actuary’s best estimate of anticipated experience under the plan.

Please contact your Bolton Consultant with any questions that you may have regarding this proposed rule.