Withdrawal Liability: Contesting Assessments Remains Uphill Battle as Ninth Circuit Affirms Funding Rate-Based Recalculation

Takeaways

• The Ninth Circuit’s City of Tacoma decision reaffirmed that using the applicable PBGC annuity rates to calculate withdrawal liability is improper.
• The court also determined it was proper to order a multiemployer pension fund to recalculate withdrawal liability using a higher rate that represents the actuary’s best estimate of investment return.
• The decision highlights the cost and difficulty for employers of contesting withdrawal liability assessments.

Related link

• City of Tacoma v. Western Metal Industry Pension Fund

Article

The U.S. Court of Appeals for the Ninth Circuit has upheld an arbitrator’s conclusion that the actuary’s use of the Pension Benefit Guaranty Corporation (PBGC) annuity rates was improper to calculate the withdrawal liability of the City of Tacoma, Washington, after it withdrew from the Western Metal Industry Pension Fund. City of Tacoma v. Western Metal Industry Pension Fund, No. 25-4055 (Aug. 6, 2026) (unpublished). The court explained that these PBGC rates “did not satisfy ERISA’s requirement that withdrawal-liability assumptions reflect the ‘best estimate of anticipated experience under the plan.’”

The Ninth Circuit has jurisdiction over Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.

Withdrawal Liability

Withdrawal liability is a statutory obligation that can be triggered when an employer’s obligation to contribute to a multiemployer pension plan (MEPP) ceases in whole or part. The amount of an employer’s withdrawal liability represents the employer’s allocable share of the MEPP’s unfunded vested benefits (UVB). UVB represents the excess of liabilities over assets. Since liabilities represent obligations to make payments in the future (e.g., when a participant retires), they must be discounted back to present value using an interest rate determined by the actuary (the Withdrawal Liability Interest Rate.)

The Withdrawal Liability Interest Rate is the most critical factor in the withdrawal liability calculation. The lower the interest rate, the greater the withdrawal liability that is assessed on withdrawn employers. For this reason, MEPPs are incentivized to use a lower Withdrawal Liability Interest Rate. In contrast, MEPPs are incentivized to use a higher interest rate (the Funding Interest Rate) to minimize the contributions required from employers remaining in the MEPP.

Case Background

In City of Tacoma, the Western Metal Industry Pension Fund assessed the City of Tacoma withdrawal liability in excess of $44 million, calculated using the applicable PBGC Rate (2.53%) as the Withdrawal Liability Interest Rate. At this time, the Fund was using a Funding Interest Rate of 7%.

Tacoma contested the assessment at arbitration, where the arbitrator determined that the Fund’s use of the PBGC Rate was improper because it did not satisfy the applicable statutory standard — that it “reflect the experience of the plan.” ERISA Section 4213(a). The arbitrator further ordered the Fund to recalculate Tacoma’s withdrawal liability using the 7% Funding Interest Rate.

The Fund appealed the arbitration award to the U.S. District Court for the Western District of Washington (where it was upheld) and then to the Ninth Circuit.

Ninth Circuit Decision

The Ninth Circuit affirmed in an unpublished decision. It found the District Court’s decision consistent with the circuit’s decision in GCIU-Emp. Ret. Fund v. MNG Enters., Inc., 51 F.4th 1092 (2022). In GCIU, the Ninth Circuit ruled it was improper to use PBGC rates to calculate withdrawal liability.

The court further found it proper to order the Fund to recalculate Tacoma’s withdrawal liability using the Fund’s 7% Funding Interest Rate. Like the Withdrawal Liability Interest Rate, the court explained, the Funding Interest Rate is required to reflect the actuary’s best estimate of anticipated experience under the plan. ERISA Section 304(c)(3)(B).

The Ninth Circuit denied the City of Tacoma’s request for attorney’s fees and costs, although the court previously ruled differently on this exact issue in GCIU. The Ninth Circuit found “the ability of the [Fund] to pay the fees and whether the [Fund’s] participants would benefit from an award of fees militate against awarding fees and costs.”

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Unlike some courts that have extended the duration and cost by remanding these types of cases back to the fund actuary to determine an interest rate that satisfies the statutory mandate, Ninth Circuit ordered the Fund to recalculate withdrawal liability using the Funding Interest Rate. Nevertheless, City of Tacoma demonstrates the significant obstacles employers continue to face in challenging a withdrawal liability assessment. Tacoma spent years litigating the Fund’s use of the applicable PBGC Rate to calculate withdrawal liability despite multiple circuit courts (including the Ninth Circuit) having previously rejected the practice. The Ninth Circuit refused to grant Tacoma’s request for attorney’s fees, illustrating the general reluctance to award attorney’s fees against a MEPP.

Please contact the authors with any questions regarding withdrawal liability.