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The dispute arose because the Fund determined that The New York Times had partially withdrawn from the plan in two consecutive years and assessed withdrawal liability against the Times.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

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

Manufacturers and retailers that have long relied on a complex web of contractors and subcontractors to supply necessary parts and materials may face a new risk. A recent decision limiting the effectiveness of a no-strike clause in a collective bargaining agreement may create an additional risk to that supply chain, if not to the employer’s own uninterrupted operations.

No-Strike Clauses

  • Most CBAs contain some form of a no-strike clause. They are intended to protect against any interruption to production due to labor unrest during the term of the agreement.
  • The Supreme Court has long deemed a strike in violation of a no-strike clause a breach of the collective agreement which a federal district court could enjoin.
  • BUT — that assumption may no longer be wholly valid as demonstrated by a recent decision by a federal district court. Just Born, Inc. v. Local Union No. 6, Bakery Workers, 2017 BL 466136 (ED Pa. 2017).

Continue Reading Supply Chain Interruption Risk From Mid-Term Strikes

On Wednesday, December 13, Barbara Gressel, Deputy Commissioner, Department of Business Affairs and Consumer Protection (BACP) provided the Chicago Bar Association’s Labor & Employment Committee with an informative presentation about the City of Chicago’s Paid Sick Leave Ordinance (in effect since July 1, 2017).

Ms. Gressel, who leads the Department’s compliance and enforcement efforts, reviewed the Ordinance’s accrual and carry over rules, as well as the provisions concerning usage caps. The remainder of her presentation involved how the Department will investigate charges, and the administrative process for formally enforcing the ordinance. Here are our takeaways:

Department Investigations Initiated by Employee Complaint

  • Enforcement begins with the filing of a complaint by an employee. Employees may obtain a copy of a blank complaint by visiting the Department’s webpage. The charge must be filled out by hand, or on a typewriter. The complete complaint can be filed by facsimile (fax) or in person.
  • The Department intends to investigate each facially valid complaint on a class-wide basis. It reasons that if one employee is not receiving proper payment, accrual, carryover etc., no employee is. The request for information will be by administrative subpoena.
  • At least initially, the Department intends to attempt to resolve complaints informally. Employers who refuse to meet their obligations during this initial period will be prosecuted for a ordinance violation. Similarly, after the initial familiarization period (expected to last 18-24 months), the Department will use its formal ordinance enforcement process whenever it determines to allege a violation has occurred.

Continue Reading Chicago’s New Sick Leave Ordinance May Leave Some Employers Feeling Ill

In October, we discussed one of the hottest trending class-action claims: the Illinois Biometric Privacy Act (BIPA). In our alert, we noted that it was not clear whether a plaintiff would need to show a concrete injury to be entitled to damages or whether a mere statutory violation would be sufficient to warrant damages.

On November 21, the Second Circuit Court of Appeals issued a decision on this very issue.

Continue Reading UPDATE Regarding The Illinois’ Biometric Information Privacy Act

Attention employers using biometric identification technology, such as retina scans, fingerprint identification and facial recognition technology:

A number of corporations in Illinois, including internet and video game companies, food product manufacturers, gas stations, and restaurant chains, have been sued in the past few months for alleged BIPA violations.

Here’s what you need to know

Continue Reading How To Avoid Class Action Liability Under Illinois’ Biometric Information Privacy Act