In the

United States Court of Appeals

For the Seventh Circuit

No. 11-3034

CHICAGO TRUCK DRIVERS, HELPERS AND

WAREHOUSE WORKERS UNION (INDEPENDENT)

PENSION FUND, and JACK STEWART, Trustee,

Plaintiffs-Appellants,

v.

CPC LOGISTICS, INC.,

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 10 C 2314—James B. Zagel, Judge.

ARGUED APRIL 3, 2012—DECIDED AUGUST 20, 2012

Before BAUER, POSNER, and KANNE, Circuit Judges.

POSNER, Circuit Judge. This appeal from a decision

upholding an arbitrator’s award is about what happens

when an employer withdraws from a multiemployer

defined-benefits pension plan, as the appellee, CPC, did

in 2005.
2 No. 11-3034

Multiemployer pension plans—which are governed, as

single-employer plans are, by ERISA—are created by

collective bargaining agreements to provide benefits to

employees of many different firms. Thus they are found

in industries such as construction and trucking in

which workers do short-term, seasonal, or irregular work

for many different employers over their working lives.

29 U.S.C. § 1002(37)(A); John H. Langbein et al., Pension

and Employee Benefit Law 70-75 (5th ed. 2010). When an

employer withdraws from such a plan, the plan

remains liable to the employees who have vested pension

rights, though it no longer can look to the employer

to contribute additional funds to cover these obligations.

In an effort to prevent withdrawals that will shift the

burden of funding the pension plan to the remaining

employers and by doing so may precipitate additional

withdrawals, provisions added to ERISA by the Multiemployer Pension Plan Amendments Act of 1980, 29 U.S.C.

§§ 1381-1461, assess the employer with an exit price

equal to its pro rata share of the pension plan’s funding

shortfall. The shortfall (“unfunded vested benefits”) is

the difference between the present value of the pension

fund’s assets and the present value of its future obligations to employees covered by the pension plan. 29 U.S.C.

§§ 1381, 1391. (If the present value of the assets exceeds

the present value of the plan’s future obligations, there

is no shortfall.)

Estimation of the shortfall depends critically on estimating the amount by which the fund’s current assets

can be expected to grow by the miracle of compound
No. 11-3034 3

interest. The higher the estimated rate of growth, the

less the employers must put into the fund today to cover

the future entitlements of the plan’s participants and

beneficiaries. “[F]or a typical plan, a change (upward or

downward) of 1 percent in the interest assumption (e.g.

an increase from 6 to 7 percent) alters the long-run cost

estimate by about 25 percent.” Dan M. McGill et al.,

Fundamentals of Private Pensions 612 (8th ed. 2005); see

also Artistic Carton v. Paper Industry Union-Management

Pension Fund, 971 F.2d 1346, 1348 (7th Cir. 1992).

In addition to estimating the size of the plan’s funding

shortfall, the pension plan must apportion responsibility

for the shortfall among the employers participating in

the plan. Each employer must pay his share to the fund

if and when he withdraws, so that the plan can pay the

employer’s share of the plan’s unfunded vested benefits

as those benefits come due in the future. An employer

who has just joined the plan may worry about inheriting

withdrawal liability because the existing members failed

to fund the plan adequately in prior years. To alleviate

this worry, ERISA creates default rules (that is, rules

that govern unless the plan provides otherwise) for

assigning each participating employer a share of only

so much of the plan’s funding shortfall as occurred

while the employer was participating in the plan. 29 U.S.C.

§§ 1391(b)(2)-(4); 29 C.F.R. § 4211.32; CenTra, Inc. v. Central

States, Southeast & Southwest Areas Pension Fund, 578

F.3d 592, 599-600 and n. 7 (7th Cir. 2009); Israel Goldowitz

& Ralph L. Landy, “Special Rules for Multiemployer

Plans,” in ERISA Litigation 1292-95 (Jayne E. Zanglein et al.

eds., 4th ed. 2011). The plan in this case used these rules
4 No. 11-3034

to calculate the pro rata share of the funding shortfall to

be borne by the withdrawing employer, appellee CPC.

The rules calculate withdrawal liability in steps. The

first is to determine annual “pools” of liability, each

representing the change (which might be an increase or

a decrease) in the plan’s total funding shortfall from one

year to the next. The previous pools (that is, the previous

annual changes in unfunded vested benefits) are then

discounted by 5 percent a year (so, for example, a pool

from seven years earlier would be discounted by 35

percent). As a result, after 20 years a pool no longer

affects withdrawal liability. The rationale for discounting is that with the passage of years, funded benefits

are more likely to have been paid and so no longer be

owing.

Next, each discounted pool is apportioned among the

employers participating in the plan on the basis of their

contributions to the pension fund in the pool year

and the four years preceding. The five-year window

measures the size of an employer’s contributions to the

fund relative to the other employers in the short term,

on the theory, related to the 20-year discounting, that

recent experience has greater predictive significance.

The window is five years rather than just one in order

to smooth trends in contribution, so that a year of anomalous contributions doesn’t drastically alter the allocation shares among employers. (Thus an employer who

contributed a lot in 2004 but almost nothing from 2000

to 2003 would not be assessed a large chunk of the

2004 liability pool—the brief spike would be smoothed by
No. 11-3034 5

the inclusion of the preceding years.) An employer’s

withdrawal liability is the sum of his fractional share,

calculated on the basis of his last five years’ contributions, of the 20 pools.

The table below presents a slightly simplified version

of how CPC’s withdrawal liability was determined. The

annual pool is calculated first. (Notice that for years in

which the plan’s funding shortfall decreased—for example,

1985-1986 and 1995-1998—the pools are negative. Each

employer’s share of negative pools reduces his withdrawal liability.) The pools are discounted at 5 percent

per year. The discounted pools are then divided among

the employers on the basis of their relative contributions

in the pool year and the four prior years (CPC made

3.67 percent of all contributions to the fund from 2000 to

2004 and 1.42 percent of all contributions from 1985 to

1989.) Its withdrawal liability (exit price) was thus the

sum of its shares of each of the discounted pools from

1985 to 2004.
6 No. 11-3034

Year Pool

100%

Minus

Discount

Rate

Discounted

Pool

CPC’s

Relative

Contribution

CPC’s

Share of

Each Pool

2004 $56,171,305 x 100% = $56,171,305 x 3.67% = $2,061,487

2003 $39,092,526 x 95% = $37,137,900 x 2.75% = $1,021,292

2002 $8,587,297 x 90% = $7,728,567 x 1.65% = $127,521

2001 $7,960,547 x 85% = $6,766,465 x 1.44% = $97,437

2000 $2,768,374 x 80% = $2,214,699 x 1.26% = $27,905

1999 $6,044,832 x 75% = $4,533,624 x 1.28% = $58,030

1998 -$14,106,445 x 70% = -$9,874,512 x 1.06% = -$104,670

1997 -$2,854,709 x 65% = -$1,855,561 x 0.82% = -$15,216

1996 -$3,878,390 x 60% = -$2,327,034 x 0.56% = -$13,031

1995 -$7,226,847 x 55% = -$3,974,766 x 0.49% = -$19,476

1994 $13,469,192 x 50% = $6,734,596 x 0.46% = $30,979

1993 $9,433,992 x 45% = $4,245,296 x 0.59% = $25,047

1992 $3,155,707 x 40% = $1,262,283 x 0.78% = $9,846

1991 $6,080,864 x 35% = $2,128,302 x 1.04% = $22,134

1990 $2,031,775 x 30% = $609,533 x 1.23% = $7,497

1989 $7,118,643 x 25% = $1,779,661 x 1.42% = $25,271

1988 $9,804,517 x 20% = $1,960,903 x 1.59% = $31,178

1987 $22,647,445 x 15% = $3,397,117 x 1.66% = $56,392

1986 -$13,247,195 x 10% = -1,324,720 x 1.61% = -$21,328

1985 -$381,233 x 5% = -$19,062 x 1.49% = -$284

 CPC’s Withdrawal Liability: $3,428,013 

Disputes over withdrawal liability are resolved by

arbitration, 29 U.S.C. § 1401(a)(1); Chicago Truck Drivers v.
No. 11-3034 7

El Paso CGP Co., 525 F.3d 591, 595 (7th Cir. 2008), subject

however to judicial review similar in scope to appellate

review of district court decisions. Central States, Southeast

& Southwest Areas Pension Fund v. Midwest Motor Express,

Inc., 181 F.3d 799, 804-05 (7th Cir. 1999); Board of Trustees,

Sheet Metal Workers National Pension Fund v. BES Services,

Inc., 469 F.3d 369, 375 (4th Cir. 2006). The arbitrator in

the present case ruled that the pension plan’s trustees

had overassessed CPC’s withdrawal liability by $1,093,000

(almost a third of its total assessment—the $3.4 million

figure in the table). The district judge upheld the arbitrator’s ruling, and the plan and one of its trustees (but

we can ignore him) appeal.

Appellate review of the district court’s decision is

plenary, in the sense that the court of appeals like the

district court is reviewing the arbitrator’s decision, see

CenTra, Inc. v. Central States, Southeast & Southwest Areas

Pension Fund, supra, 578 F.3d at 602; Joseph Schlitz Brewing

Co. v. Milwaukee Brewery Workers’ Pension Plan, 3 F.3d 994,

1000 (7th Cir. 1993), affirmed, 513 U.S. 414 (1995); Central

States, Southeast & Southwest Areas Health & Welfare Fund

v. Cullum Cos., 973 F.2d 1333, 1335 (7th Cir. 1992), and

thus not deferring to the district court’s ruling. This is

the same pattern that is observed when a court of

appeals reviews a decision by a district court to which

an administrative law judge’s decision denying social

security disability benefits has been appealed. McKinzey

v. Astrue, 641 F.3d 884, 889 (7th Cir. 2011); O’ConnorSpinner v. Astrue, 627 F.3d 614, 618 (7th Cir. 2010). It is

the arbitrator’s decision, like the administrative law
8 No. 11-3034

judge’s, that receives judicial deference, from both the

district court and the court of appeals.

Hideous complexities lurk in the briefs in this appeal.

Many appellate lawyers write briefs and make oral arguments that assume that judges are knowledgeable

about every field of law, however specialized. The assumption is incorrect. Federal judges are generalists.

Individual judges often have specialized knowledge of a

few fields of law, most commonly criminal law and

sentencing, civil and criminal procedure, and federal

jurisdiction, because these fields generate issues that

frequently recur, but sometimes of other fields as well

depending on the judge’s career before he became a

judge or on special interests developed by him since.

But the appellate advocate must not count on appellate

judges’ being intimate with his particular legal nook—with

its special jargon, its analytical intricacies, its commercial setting, its mysteries. It’s difficult for specialists

to write other than in jargon, and when they don’t realize

the difficulty this poses for generalist judges neither

do they realize the need to write differently.

Federal pension law is a highly specialized field that

judges encounter only intermittently. Yet the lawyers

in this case made no allowance for our lacking their

specialized knowledge. Consider this extract from the

statement of facts in the appellant’s opening brief (record

citations and footnotes omitted):

Most multiemployer pension plans retain one

plan actuary, and ask it to provide calculations for

two purposes: (1) calculations which ERISA and the
No. 11-3034 9

Internal Revenue Code (the “Code”) require the

actuary to certify on Schedule B to the plan’s annual

report; and (2) calculations the plan can use as

the foundation for determining withdrawal

liability . . . . The Fund’s actuary, the Segal Company

(“Segal”), . . . calculated UVB for withdrawal liability

purposes using a series of steps rather than simply

using the UVB from its Schedule B report. Segal’s

approach, known as the “Segal Blend,” is to

combine the interest rate from its Schedule B

funding report with the average interest rates then

current for annuities. Over the years Segal thus provided the Fund with one UVB for funding and

another for withdrawal liability. 

In 1993 . . . the Supreme Court issued a decision

that prompted Segal to issue a guidance memorandum

to its actuaries dated March 29, 1994. The memorandum advised Segal actuaries that the Court’s decision

in Concrete Pipe and Prods. v. Construction Laborers

Pension Trust, 508 U.S. 602 (1993), raised the question

whether it was permissible for an actuary to have

different numbers for the UVB in the withdrawal

liability report and the Schedule B report. The memorandum suggested that client plan trustees be asked

to make a decision telling Segal what to do and attached templates for memoranda to be provided to

client trustees and plan counsel and a “Questions

and Answers” section for actuaries to use in advising their clients on the decision. The gist of the

templates was to advise client plans that Segal’s use

of different assumptions in the two reports may
10 No. 11-3034

create litigation risk for the clients. Two solutions

were proposed for consideration. First, the trustees

could direct Segal to continue to use the Segal

Blend approach for withdrawal liability, which

would continue to produce two different numbers

for the plan’s unfunded vested benefits each year,

one for the funding report and one for the withdrawal liability report. Second, the trustees could

direct Segal to modify the steps used to determine

the UVB for withdrawal liability: first calculate the

UVB using the Blend assumptions, and then determine the UVB using the funding assumptions, with

the latter setting an upper limit for the UVB. Using

the lower number for the UVB each year, Segal reasoned, would eliminate the risk that an employer

would complain that the UVB was too high . . . .

[The trustees chose the latter option, passing a

resolution] that the UVB would continue to be determined based upon the Segal Blend (“best estimate”)

approach, subject to the directive that the UVB not

be higher than the UVB reported by Segal to the

IRS in Schedule B for that year. 

As it happened, CPC’s withdrawal liability assessment was significantly impacted by two factors.

First, in 2004 the Fund repealed the 1997 resolution

adopting the “cap” on the Segal Blend method, returning to always using the Segal Blend to determine UVB, resulting in the recapture of unfunded

vested benefit liabilities of the Fund not previously

recognized due to the operation of the cap. At
No. 11-3034 11

precisely the same time, CPC’s share of the Fund’s

total contribution base increased dramatically, from

1.26% in 2000 to 3.67% in 2004. The combination of

these two factors served to create significantly

higher liability for CPC than if it had happened

to withdraw in a different year . . . .

Here is a parallel discussion in the appellee’s brief (again

we omit record citations and footnotes):

In a memorandum dated Wednesday, April 4, 1997,

the Client Relationship Manager from the Segal Company to the Fund. . .discussed the Supreme Court’s

1993 decision in Concrete Pipe and Product of California

Inc. v. Construction Laborers Pension Trust for Southern

California, 508 U.S. 602 (1993). The memorandum

advised that the Segal Blend remained the actuary’s

best estimate for the interest assumption to be used

in the calculation of the Fund’s UVBs for withdrawal

liability purposes, and suggested that the Fund

consult with legal counsel on the impact of the continued use of the Segal Blend. . . . [The manager testified] that the memorandum provided the trustees

“with an option to cap the unfunded liability.” . . . . 

As a result . . . the trustees required the actuary

to apply a “cap” to the UVBs used to calculate the

withdrawal liability pools from 1996 until 2004. As

indicated in Segal’s withdrawal liability reports

during the years that the cap applied, the cap limited

UVBs “to be no greater than the vested liability calculated using the same investment return used for

funding less the actuarial value of assets.” Thus, the
12 No. 11-3034

funding interest assumption was used to calculate

the UVBs that were the basis [of] the pool in all years

when it produced lower UVBs than the Segal Blend

interest assumption . . . .

Evidence at the arbitration hearing confirmed

that the trustees capped UVBs for the deliberate

purpose of lowering withdrawal liability in order to

attract employers to the Fund. Segal Chief Actuary

Thomas Levy testified Segal came up with the

Concrete Pipe option in 1996 because employers had

come to Segal with concerns that “changing economic

circumstances” would “severely adversely affect the

willingness” of employers to support their plans,

because it resulted in higher withdrawal liability

assessments . . . . [Plan] Trustee William Carpenter

conceded that the reason for adopting the cap was

to lower withdrawal liability due to concerns at the

time that higher withdrawal liability would put off

employers and prospective employers who might

come into the Fund.

The trustee’s cap was removed in the 2004 withdrawal liability report . . . . [T]he trustees decided to

remove the cap in order to raise withdrawal liability

for departing employers and enhance the viability

of the Fund at a time when the Fund was experiencing

declining assets and declining membership. 

The selective decisions to cap and then uncap the

UVBs had a significant impact on CPC’s assessed

withdrawal liability. When the trustees uncapped

UVBs in 2004, the UVBs nearly doubled from
No. 11-3034 13

$67 million in 2003 to $117 million in 2004. Without

the cap, portions of this increase in the UVBs would

have been included in several of the earlier pools

(and would have been subject to the statutory 5% per

year reduction). Also significantly for CPC, much of

the change attributed to 2004 would have been allocated to prior years when CPC’s relative percentage

of contributions was lower. Employers, such as CPC,

who had a larger percentage of the 2004 pool than

they had during previous years, were disproportionately affected by the 2004 pool. Specifically, the concomitant result of the cap on the interest assumption

in prior years and subsequent removal of the cap

in 2004 was that the “sum allocable” to CPC for the

2004 pool was $2.075 million, compared to $1.45

million for all of the 19 previous pools combined.

Because CPC was a larger contributor to the Fund

in 2004 than it had been in prior years, if the trustees

had used Segal’s best estimate assumptions for all

years, CPC’s allocable share of the 2004 pool would

have been only $353,452, resulting in a reduction of

$1.093 million in CPC’s overall assessment.

All this was terribly opaque to us because the parties

failed to provide context—failed to explain what exactly

the pools are, why interest rates are important to withdrawal liability, what the “funding interest assumption”

is, and why what they confusingly call a “cap” on the

Segal Blended Rate (confusingly because in most years

the “cap” required as we’ll see the substitution of a

higher rate than the Blended Rate) caused a loss to CPC

when the “cap” was removed.
14 No. 11-3034

And so at the oral argument one of the judges felt

compelled to ask one of the lawyers, pleadingly, whether

she could explain in words of one syllable what the

case was about. She was a good lawyer and tried, but,

perhaps surprised by the question, failed.

We have had to fall back on a remark by Justice Holmes:

“I long have said there is no such thing as a hard case. I am

frightened weekly but always when you walk up to the

lion and lay hold the hide comes off and the same old

donkey of a question of law is underneath.” Holmes-Pollock

Letters: The Correspondence of Mr. Justice Holmes and

Sir Frederick Pollock, 1874-1932, vol. 1, p. 156 (Mark De

Wolfe Howe ed. 1941) (letter to Pollock of Dec. 11, 1909).

We have applied ourselves to tugging the hide off this

lion in search of the donkey underneath. We think we

have found the donkey.

We said earlier that estimating the interest rate at

which the pension fund’s assets are likely to grow is

required for determining withdrawal liability. Consider

a plan that has $1 million in assets and expects to have a

$5 million benefit obligation 20 years from now. If its

assets are assumed to grow over this period at an

annual rate of 6 percent, its funding shortfall—the difference, discounted to present value, between the $5 million

it will owe and the assets it will have as a result of the

compounding of the 6 percent interest—will be $505,971. If

the plan’s assets and benefit obligation are unchanged at

year’s end, its funding shortfall will have grown to

$599,099, the increase being attributable to the fact that

the benefit will be one year closer to falling due. The
No. 11-3034 15

plan’s withdrawal liability pool will thus be $93,124, the

amount by which the funding shortfall increased. If an

8 percent interest rate were assumed instead, the initial

shortfall would be only $9,482, increasing to $93,559 at

year’s end, creating a withdrawal liability pool of $84,076.

Estimating the growth of the fund’s assets is required

not only for determining withdrawal liability but also

for determining whether employers are contributing to

the fund the minimum amount required by ERISA in

order to reduce the probability that the Pension Benefit

Guaranty Corporation may have to make up for the

fund’s not being able to pay vested benefits; for the

Corporation is the insurer of those benefits, though only

to a limited extent. (In fact, the Corporation has been

helping the fund in this case remain solvent. See “PBGC

Divides Chicago Trucker Pension Plan to Extend its

Solvency,” May 26, 2010, www.pbgc.gov/news/press/

releases/pr10-35.html (visited Aug. 3, 2012).) Employers

must pay a penalty in the form of a tax if they fail to

contribute the required minimum amount. 26 U.S.C. § 412,

§§ 4971(a)(2), (b)(2); Langbein et al., supra, at 220-35.

The plan in our case retained a prominent pension

benefits actuarial firm—the Segal Company—to

determine whether the plan met its minimum funding

requirements for avoiding the tax penalty and also

what the withdrawal liability of each of its participating

employers would be if one or more of them withdrew

from the plan in the coming year. Both funding calculations depended critically on the interest rate used to

estimate the plan’s ability to meet its future obligations.
16 No. 11-3034

During the period relevant to this case, ERISA required

the plan actuary, in calculating interest rates as in

making other actuarial determinations (such as how the

plan’s liabilities would grow in the future, which will

depend on the rate at which employees with vested

benefits retire and die as well as on the rate at which

future employees will work long enough for their

benefits to vest), to use assumptions which, “in the aggregate, are reasonable” and “which, in combination,

offer the actuary’s best estimate of anticipated experience under the plan.” These requirements apply to

determining both adequacy of funding to avoid the tax

penalty, 26 U.S.C. § 412(c)(3)(A)(ii), (B) (revised by the

Pension Protection Act of 2006 in respects not material

to this case), and withdrawal liability. 29 U.S.C.

§ 1393(a)(1). 

Despite the identical statutory text (the text we just

quoted) for both calculations, the Segal Company used

different formulas to arrive at its “best estimate” of the

two rates. It called its best estimate of the interest rate

for tax purposes the “funding interest assumption”

and for withdrawal-liability purposes the “Segal Blended

Rate.” We’ll call the funding interest assumption the

“Funding Rate.”

The different methods yielded different interest rates.

The Blended Rate was based in part on current rates for

annuities (and in part on the Funding Rate—hence

“blended”). These rates were shorter-term and more

variable than rates used for the Funding Rate because

they were used to calculate the employer’s liability at
No. 11-3034 17

a specific time (namely the coming year). What might

happen in later years to affect the fund’s assets and

liabilities—critical considerations in determining

whether the pension plan was sufficiently funded to

avoid the penalty tax—was irrelevant.

If the short-term rates used in calculating the Blended

Rate exceeded the long-term interestrates used to calculate

the Funding Rate, making the Segal Blended Rate higher

than the Funding Rate, the effect would be to reduce

withdrawal liability, because the higher the assumed

interest rate in calculating withdrawal liability the faster

the funds’ assets would be estimated to grow and so the

lower its future liabilities would be projected to be. When

developed (in the 1980s, shortly after the Multiemployer

Pension Plan Amendments Act was passed), an era generally of high interest rates, the Segal Blended Rate

usually did generate a higher interest-rate estimate than

the Funding Rate, making the estimate of the plan’s

shortfall smaller for withdrawal-liability purposes than

for penalty-tax purposes. Minimizing withdrawal

liability was attractive for Segal’s multiemployer-plan

clients because it made it easier for them to induce employers to join such a plan—easier because they could expect to be charged a lower exit price if they later withdrew.

But the two rates had reversed by the mid-1990s. The

Segal Blended Rate was now lower than the Funding

Rate, resulting in higher withdrawal-liability estimates

than if the Funding Rate had been used. Remember that

the lower the interest rate used to calculate the future

growth of fund assets, the lower the estimate of what
18 No. 11-3034

those assets will be worth in the future, just as the slower

a child grows each year, the shorter he will be as an adult.

In 1997 Segal told the pension plan’s trustees that they

could if they wanted direct Segal to ignore the Segal

Blended Rate and instead use the Funding Rate—which

now as we said exceeded the Segal Blended Rate—to

calculate withdrawal liability. Segal didn’t say the

Funding Rate was as good an estimate as Segal’s own “best

estimate” for withdrawal-liability purposes; it stuck to

its best estimate; it just said that the pension plan

could choose between the two rates in calculating employers’ withdrawal liability. Language in the Supreme

Court’s decision in Concrete Pipe & Products of California,

Inc. v. Construction Laborers Pension Trust, 508 U.S. 602, 632-

33 (1993), could be read to suggest that having two different interest-rate assumptions—one for withdrawal

liability and one for avoiding the tax penalty—might

make a plan vulnerable to claims that either or both

were “unreasonable” within the meaning of 29 U.S.C.

§ 1393(a)(1). The danger was remote; the Court had

indicated that “supplemental” assumptions that might

cause the rates to diverge were permissible. 508 U.S. at

633. Nevertheless Segal was worried, and at its suggestion the plan’s trustees directed Segal to calculate

both the Segal Blended Rate and the Funding Rate and

then use the higher of the two (which remember would

generate a lower withdrawal liability) each year. The

Funding Rate was higher in every year from 1996 to

2004 except 2000 when the Segal Blended Rate was

higher and hence was used by the plan instead. 
No. 11-3034 19

The trustees’ decision was questionable. ERISA

requires that the computation of withdrawal liability be

based on “the actuary’s best estimate of anticipated experience.” 29 U.S.C. § 1393(a)(1) (emphasis added); cf.

Citrus Valley Estates, Inc. v. Commissioner, 49 F.3d 1410, 1414

(9th Cir. 1995); Rhoades, McKee & Boer v. United States,

43 F.3d 1071, 1075 (6th Cir. 1995); Wachtell, Lipton, Rosen

& Katz v. Commissioner, 26 F.3d 291, 296 (2d Cir. 1994). The

actuary is a professional, assumed to be neutral and

disinterested; a plan’s trustees, in contrast, may, whether

for short-term reasons, pressures from employers or

unions, or lack of relevant expertise, want unreasonably

high or unreasonably low interest-rate assumptions,

contrary to 29 U.S.C. § 1393(a)(1). On the one hand, the

higher the interest rate assumed, the faster the fund will

be predicted to grow and so the smaller will be the

liability of withdrawing employers; this in turn may

encourage employers to join the plan. On the other

hand, the lower the interest rate assumed, the greater

the funding shortfall, enabling the plan to impose

greater withdrawal liability on any withdrawing employer. That will discourage withdrawals, and also alleviate current funding shortfalls by replenishing the fund

with large withdrawal payments by those employers who

do withdraw. 

In 2004 the plan’s trustees directed the Segal Company

to revert to using the Segal Blended Rate to

calculate the plan’s unfunded vested benefit pools for

withdrawal-liability purposes. That rate was lower than

the Funding Rate (as it had been in every year since

1996 except 2000), but the plan’s priorities apparently
20 No. 11-3034

had changed, from attracting more employers with the

prospect of low withdrawal liability (by assuming a

high interest rate and therefore a rapid growth in the

fund’s assets) to extracting higher exit prices from employers who withdrew (by assuming a low interest rate

and in consequence a sluggish rate of asset growth and

so a larger shortfall.).

The reversion to the Segal Blended Rate in 2004 was a

major factor in causing the plan’s unfunded vested

benefits to leap from $67 million to $117.2 million that

year. It was the plan’s use of the higher Funding Rate

from 1996 to 2003, coupled with the reversion to the

lower Segal Blended Rate thereafter, that increased CPC’s

withdrawal liability by $1,093,000 from the amount

it would have owed had the Segal Blended Rate been

used throughout the period. 

For CPC had been hit by a one-two punch. The higher

rate in 1996-2003 had, by shrinking the pools and thus

withdrawal liability, induced a number of employers to

withdraw, so that in 2004 CPC found itself allocated a

higher share of the 2004 pool. The change in interestrate assumptions particularly distorted the 1996 and

2004 pools because the funding shortfalls calculated at

the beginning and end of those years were based on

different interest rates. Since the withdrawal liability

pool is the growth of the funding shortfall, a mid-year

change in the assumptions can have a dramatic effect

even if the plan’s financial performance is unchanged.

Recall how in our earlier example the constant use of an

8 percent interest rate generated a withdrawal liability
No. 11-3034 21

pool of $84,076, while use of a 6 percent rate generated

a pool of $93,124. If that hypothetical plan calculated its

initial funding shortfall using an 8 percent interest rate

and switched to a 6 percent interest rate for its yearend calculation, its withdrawal liability pool would

balloon to $589,617.

Had CPC withdrawn from the plan before 2004, it

would have benefited from the fact that the pools had

shrunk in those years, when the Funding Rate had (in

all but 2000) been used in place of the Segal Blended

Rate, since it would have paid less in withdrawal

liability upon leaving the fund. But it had stuck around,

and the earlier shrinkage had caused the 2004 pool to

soar in size in order to compensate. Foisting a larger

share of the larger 2004 pool on CPC increased the company’s withdrawal liability still further.

ERISA requires the plan’s trustees to base its calculation of withdrawal liability on the actuary’s “best estimate.” 29 U.S.C. § 1393(a)(1). Segal maintains, and the

plan does not dispute, that the Segal Blended Rate, not

the Funding Rate, was its best estimate of the right

interest rate to use to calculate withdrawal liability. The

arbitrator therefore sensibly concluded that the pools

had not been calculated “on the basis of . . . actuarial

assumptions . . . which, in combination, offer the actuary’s best estimate of anticipated experience under

the plan” in years when the Funding Rate was used

in lieu of a lower Segal Blended Rate.

There is no evidence either that the offer of a choice

was made for any reason other than Segal’s anxiety

about having calculated two interest rates or that it
22 No. 11-3034

was accepted for any reason other than the trustees’

desire to attract employers to the fund by manipulating

withdrawal liability. Hence there is no basis for the

plan’s invocation of Combs v. Classic Coal Corp., 931 F.2d

96 (D.C. Cir. 1991), which reversed an arbitrator’s rejection of a withdrawal-liability calculation because he

had considered only the reasonableness of the interest

rate, ignoring the plan’s argument that its calculation of

the withdrawal liability was still “reasonable . . . in the

aggregate,” 29 U.S.C. § 1393(a)(1), because of offsetting

actuarial assumptions. Nothing in the present case

offsets the malign consequences of the trustees’ directing

Segal to use the Funding Rate instead of the Segal

Blended Rate, when the latter was the actuary’s best

estimate of the rate to use.

The plan cites 29 U.S.C. § 1393(b)(1), which states

that “the plan actuary may rely [in calculating

withdrawal liability] on the most recent complete

actuarial valuation used for purposes of” 26 U.S.C. § 412,

the section of the tax code governing calculation of a

pension plan’s minimum funding requirements—a calculation based on the Funding Rate. The plan argues

that the provision creates a safe harbor, insulating its

use of the Funding Rate for calculation of withdrawal

liability from challenge. But the provision we quoted

does not override the statutory requirements that the

calculation of withdrawal liability be based on reasonable actuarial assumptions and the plan actuary’s

best estimate. Masters, Mates & Pilots Pension Plan v.

USX Corp., 900 F.2d 727, 731-32 (4th Cir. 1990); see

Goldowitz & Landy, supra, at 1294. The Funding Rate
No. 11-3034 23

could be appropriate for use in calculating withdrawal

liability, but was not in the circumstances of this case.

Moreover, the plan’s resolution directing Segal to

switch from one method of estimating the interest rate

to another and back again compounded the damage to

CPC, and also violated the “best estimate” requirement,

which exists to maintain the actuary’s independence. Cf.

Citrus Valley Estates, Inc. v. Commissioner, supra, 49 F.3d

at 1414; Rhoades, McKee & Boer v. United States, supra, 43

F.3d at 1075; Wachtell, Lipton, Rosen & Katz v. Commissioner,

supra, 26 F.3d at 296. The fact that Segal proposed the

switch from the Segal Blended Rate didn’t mean that

the Funding Rate had become its best estimate; Segal

was explicit that it was not its best estimate. It was a

result either of its having been confused by the Supreme

Court’s decision in the Concrete Pipe case or of pressure

from the pension plan.

Finally, the plan argues that its calculation of withdrawal liability is shielded by the limited scope of the

arbitrator’s review of determinations by a plan’s trustees.

But the trustees were not entitled to disregard a

statutory directive, specifically the directive in section

1393(a)(1) that they base their estimate of withdrawal

liability on the actuary’s “best estimate” of future fund

performance. An actuarial determination that violates

ERISA by not being based on the actuary’s best estimate

is unreasonable, hence reversible by the arbitrator.

29 U.S.C. § 1401(a)(3)(B)(i); Concrete Pipe & Products of

California, Inc. v. Construction Laborers Pension Trust, supra,

508 U.S. at 634-36.
24 No. 11-3034

The district court’s judgment upholding the arbitrator’s

decision is 

AFFIRMED.

8-20-12