Employers facing potential withdrawal liability when closing facilities or withdrawing from underfunded multiemployer pension plans received some welcome news last month. In a noteworthy decision, a federal district court rejected a commonly used formula to calculate withdrawal liability. In the decision in The New York Times Company v. Newspaper and Mail Deliverers’-Publishers’ Pension Fund, et al., Nos. 17-CV-6178-RWS, 17-CV-6290-RWS (S.D.N.Y. Mar. 26, 2018), the court held that use of the so-called Segal Blend method of valuing a plan’s unfunded vested benefits to calculate withdrawal liability was a “mistake” and without statutory support under ERISA.

Multiemployer pension plans are created where “multiple employers pool contributions into a single fund that pays benefits to covered retirees who spent a certain amount of time working for one or more of the contributing employers.” Recognizing that these plans, while beneficial, could become seriously underfunded Congress passed the Multiemployer Pension Plan Amendment Act of 1980 (“MPPAA”), amending the Employee Retirement Income Security Act of 1974 (“ERISA”), to protect plans from the adverse consequences that resulted when individual employers terminate their participation in, or withdraw from, multiemployer plans.

The dispute arose because the Fund determined that The New York Times had partially withdrawn from the plan in two consecutive years and assessed withdrawal liability against the Times.

One issue before the court was whether the discount rate used by the Fund when assessing the Times’ withdrawal liability was appropriate. The Fund had calculated the Times’ withdrawal liability using the Segal Blend method, a proprietary method established by the Segal Company, an actuarial firm. The Segal Blend has been used commonly by funds because it uses a lower interest rate when calculating an employer’s withdrawal liability than typically used for funding, thereby resulting in a larger withdrawal liability to the fund. The Fund assessed the Times’ withdrawal liability in an amount in excess of $33 million. An arbitrator upheld the Fund’s use of the Segal Blend. The Times sued to vacate the award challenging the use of the Segal Blend when calculating its withdrawal liability.

Judge Sweet held that the Fund’s use of the Segal Blend rate when calculating the Times’ withdrawal liability was, in this instance, improper, and reversed the arbitrator’s approval of the use of the Segal Blend. The court found that the use of the Segal Blend uniquely in the context of calculating an employer’s withdrawal liability is not prohibited as a matter of law, but that its application in the present context was improper and violated ERISA.

The court found that ERISA requires that when calculating an employer’s withdrawal liability, “actuarial assumptions and methods” must, “in the aggregate, [be] reasonable (taking into account the experience of the plan and reasonable expectations) and … in combination, offer the actuary’s best estimate of anticipated experience under the plan.” 29 U.S.C. § 1393(a) (1) (emphasis added).

The actuary’s testimony before the arbitrator was that a 7.5% percent assumption was her “best estimate of how the Pension Fund’s assets . . . will on average perform over the long term.” She testified that she had used the Segal Blend as her “best estimate” when calculating withdraw liability “regardless of the particular pension plan’s actual portfolio of assets.”

Judge Sweet wrote that, if 7.5% was the Fund actuary’s “best estimate,” it strains reason to see how the Segal Blend, a 6.5% rate derived by blending that 7.5% “best estimate” assumption with lower, no-risk PBGC bond rates, could be accepted as the anticipated plan experience. This is especially true when the blend includes interest rates for assets not included in the Fund’s portfolio.

Judge Sweet found that the arbitrator “did not actively engage with the issue of whether the Segal Blend’s rate was a reasonable best estimate.” In sum, “the actuary’s testimony, combined with the untethered composition of the Segal Blend and paucity of analysis by the Arbitrator,” convinced the court that “a mistake has been made” in accepting the Segal Blend. Accordingly, the court reversed the arbitrator’s decision that the Segal Blend was the appropriate rate, and further found that, in the absence of additional evidence sufficient to support a different rate, the Times’ liability should be recalculated using the 7.5% assumption testified to as the “best estimate.”

It is expected that this decision will be appealed to the Second Circuit. In the meantime, employers facing withdrawal liability should examine whether the fund’s actuary has used the Segal Blend. It may be that a reduction in withdrawal liability is in order.

Last week, a team of Baker McKenzie partners (Andy Boling, Doug Darch, Bill Dugan and Miriam Petrillo) led a lively roundtable in Deerfield, Illinois on the topic of civility in the workplace.

Attorneys from the EEOC (Greg Gochanour, Regional Attorney for Chicago Office) and the NLRB (Paul Hitterman, Regional Attorney for Region 13 of the NLRB) joined us in leading the discussion. Topics included disciplining employees for uncivil workplace behavior, the enforceability of confidentiality restrictions on witnesses during internal investigations and the NLRB’s newly issued test for reviewing employee work rules.

Here, we share a “top 10” list to highlight the principal takeaways from the program.

Continue Reading Top 10 Takeaways For Managing A Diverse Workplace

In the last two weeks, New York state and city legislatures each passed groundbreaking legislation that would require most private employers to provide sexual harassment training to their workforces every year. No other US jurisdiction requires annual harassment training for all employees, making this legislation – if signed into law – the most expansive in the country. (California requires training for supervisors and managers only, see more HERE.)

Continue Reading Mandatory Sexual Harassment Training Comes To New York

The California Supreme Court’s decision in Brinker v. Superior Court unleashed a flood of single-plaintiff and class-action lawsuits involving alleged violations of California’s meal and rest period laws. Under California law, employees are entitled to take at least one 30-minute uninterrupted, off-duty meal break no later than the end of their 5th hour of work. If employees work over 10 hours, they must be provided a second 30-minute meal period. Similarly, employees must also receive 10-minute rest periods for each 4 hour-period worked or major fraction thereof.

Continue Reading Take A Break To Remember Your Meal And Rest Period Obligations Under California Law

On April 9, 2018, the Ninth Circuit issued its decision in Rizo v. Yovino and affirmed that prior salary, alone or in combination with other factors, cannot justify a wage differential between male and female employees. Judge Stephen Reinhardt, who died unexpectedly in late March, authored the  ruling. Known as the “Liberal Lion” of the federal judiciary in California, Judge Reinhardt also overturned bans on same-sex marriage and physician-assisted suicide and declared prison overcrowding unconstitutional.

Continue Reading The “Liberal Lion’s” Last Opinion Says Salary History Can’t Justify Wage Differentials

As we previously posted, on January 5, 2018, the Department of Labor did away with its previous six-factor test and announced a new “primary beneficiary” test to determine whether interns and students working for “for-profit” employers are entitled to minimum wages and overtime pay under the Fair Labor Standards Act. See our previous post HERE, as well as the DOL’s Fact Sheet #71 HERE. While employers are required to pay employees for their work, in some circumstances, interns may not actually be employees under the FLSA, and therefore, can be unpaid.

Whether your company is already planning to bring on unpaid interns, or to the extent your company would like to explore the possibility of a new unpaid internship program, you will want to consider the DOL’s new primary beneficiary test so as to guard against potential costly claims for pay and/or overtime.

Please reach out to your Baker McKenzie lawyer for more details.

Embracing mediation as a way to avoid litigation is not a sure-fire solution as one employer recently learned. See Unite Here Local 30 v. Volume Services, Inc., No. 16-55528 (9th Cir. January 26, 2018). Mediation is often employed as an alternative method of dispute resolution for its perceived advantages over traditional lawsuits (e.g. it can be quicker, less expensive and less formal than a court-driven process). For these reasons and others, many labor unions and employers frequently choose mediation as an alternative to arbitration.

Continue Reading Mediation Agreement In CBA Leads To Litigation

Is your HR team struggling with how to manage a diverse workforce in the #metoo era? Join us and representatives from the EEOC and NLRB for a complimentary seminar on April 12th to discuss the agencies views on these topics and more, including:

  • The Evolving Workplace and Where We Stand With the New Administration
  • The EEOC’s perspective: Sexual Harassment, Mandated Training, Civility Rules and Confidentiality (featuring Greg Gochanour, EEOC Supervising Trial Attorney
  • The NLRB’s Perspective: The New Standard for Evaluating Work Rules and What it Means for Employee Handbooks, Confidentiality and Civility in the Workplace (featuring Paul Hitterman, NLRB Regional Attorney, Region 13)
  • Ethics CLE: Rule 37 (ESI), Spoliation and Litigation Holds

When: 8:30 AM CST – 11AM CST (The seminar kicks off with registration and a networking breakfast, and the program begins at 9AM)

Where: Hyatt Regency Deerfield (1750 Lake Cook Rd., Deerfield, IL 60015)

Click here for more information on the seminar, including featured speakers. To register, click here.

The new data privacy rules are just around the corner…are you ready?

The EU General Data Protection Regulation (GDPR) comes into force May 25, 2018. GDPR introduces stricter requirements and higher penalties for violations, so it is important for companies to review their data privacy compliance not just with respect to customers but with respect to employees.

Join our upcoming webinar to review the new legal landscape under GDPR, discuss the different approaches for dealing with personal data after effectiveness of GDPR and consider the pros and cons of each approach.

Date: April 5, 2018

Time: 11AM – 12PM CST

Click here for more details on the webinar, including featured speakers. Register today to gain an understanding of the new rules and how to tackle them.