“Fair-Chance” Actuarial Estimates: The Sixth Circuit’s 50/50 Rule for ERISA Withdrawal Liability — Ace-Saginaw Paving Co. v. Operating Engineers Local 324 Pension Fund

Introduction

Ace-Saginaw Paving Company’s partial withdrawal from the Operating Engineers Local 324 Pension Fund ignited a multi-million-dollar dispute over the proper discount rate for calculating withdrawal liability under the Employee Retirement Income Security Act of 1974 (ERISA). At stake was the difference between a 2.27 % rate, adopted by the Fund’s actuary to mirror the Pension Benefit Guaranty Corporation (PBGC) annuity rates, and a 7.75 % rate, previously used for the Fund’s ongoing minimum funding calculations. The lower rate would more than double Ace-Saginaw’s bill.

After arbitration and district-court review, the Sixth Circuit was asked:

Did the actuary’s choice of 2.27 % comply with 29 U.S.C. § 1393(a)(1), which demands “reasonable” assumptions that, “in combination, offer the actuary’s best estimate” of plan experience?
What remedy is appropriate when the assumption fails that statutory test?

The Court’s answer — that an actuary’s “best estimate” must approximate a 50/50 probability of over- or under-estimation and may not be tilted to achieve policy goals — establishes an important clarifying precedent for multiemployer pension plans nationwide.

Summary of the Judgment

Holding: The 2.27 % rate violated § 1393(a)(1) because the actuary knowingly selected a figure that would overstate Ace’s liability 77-95 % of the time, i.e., it was not his best estimate.
Reasoning: § 1393 contains a two-part test: (1) reasonableness (objective professional norms) and (2) the actuary’s best estimate (subjective, but genuinely held). Even if the PBGC rate were “reasonable,” it failed the best-estimate prong because the actuary admitted adopting it for deterrence and risk-shifting, not for predictive accuracy.
Remedy: The Fund must recalculate withdrawal liability using assumptions that comply with ERISA; however, the Court declined to mandate the 7.75 % minimum-funding rate, allowing a fresh, but compliant, actuarial determination.
Attorney’s Fees: Each side bears its own appellate costs; the appeal was not frivolous.

Analysis

A. Precedents Cited and Their Influence

Concrete Pipe & Products v. Construction Laborers Pension Trust, 508 U.S. 602 (1993) — Identified the actuary as a “neutral and disinterested” professional and highlighted the pivotal nature of the discount rate. The Sixth Circuit used this case to emphasize the prohibition on trustee- or policy-driven actuarial assumptions.
Rhoades, McKee & Boer v. United States, 43 F.3d 1071 (6th Cir. 1995) — Provided the two-part reasonableness/best-estimate framework; warned against assumptions reflecting “dictates of plan administrators.” The Court relied on this to test the actuary’s motives.
Board of Trustees v. Eberhard Foods, 831 F.2d 1258 (6th Cir. 1987) — Noted that small changes in rates have large liability impacts and allowed differing rates for minimum funding and withdrawal liability when properly justified. In Ace-Saginaw, the Court accepted the possibility of divergence but demanded rigorous justification.
Chicago Truck Drivers Pension Fund v. CPC Logistics, 698 F.3d 346 (7th Cir. 2012) — Struck down interest-rate manipulation intended to stem employer withdrawals. The Sixth Circuit analogized Feldman’s conduct to the trustee interference condemned in CPC Logistics.
Sofco Erectors v. Ohio Operating Engineers Pension Fund, 15 F.4th 407 (6th Cir. 2021) — Held that a “standard formula” untailored to plan characteristics flunked § 1393. Ace-Saginaw extends Sofco by articulating the 50/50 best-estimate rule.

B. Legal Reasoning in Depth

The Court dissected § 1393(a)(1) into three statutory phrases, each carrying independent weight:

“Actuarial assumptions and methods … are reasonable” — an objective professional standard. The Court accepted that the PBGC rate could be within the broad envelope of reasonableness.
“… which, in combination, offer the actuary’s best estimate” — a subjective inquiry: Did the actuary believe the chosen rate would most accurately predict plan experience?
“… of anticipated experience under the plan” — the estimate must be tailored to that plan’s unique portfolio, demographics, and horizon.

Feldman failed chiefly on (2): he expressly selected a rate intended to deter exits and shift risk to withdrawing employers, acknowledging a 77-95 % likelihood of over-collection. That candid admission doomed the assumption, because an actuary’s “best estimate” must approximate a neutral midpoint of uncertainty — roughly a 50 % chance of over- or under-shooting.

On remedy, the Court balanced two principles:

Restitutio in integrum — Ace deserves a liability figure compliant with § 1393.
Actuarial discretion — Courts should not supplant professional judgment where a lawful recalculation might still differ from the minimum-funding rate for legitimate, accuracy-enhancing reasons (e.g., shorter horizon).

Accordingly, the actuary must start afresh, but the Court refused to freeze the rate at 7.75 %.

C. Impact of the Judgment

Codifies a “50/50” Benchmark: Actuaries within the Sixth Circuit (and likely beyond) must document that their assumptions carry an approximately equal probability of understatement and overstatement. “Conservatism” for its own sake contravenes ERISA.
Deters Strategic Rate-Setting: Trustees and consultants can no longer justify ultraconservative rates by citing plan fragility or a desire to deter withdrawals. The decision shifts focus back to actuarial science, away from policy engineering.
Guidance for Arbitrators: Provides a clear procedural question: Did the actuary think the rate was the best predictive midpoint? This simplifies arbitrations and district-court reviews.
Potential Upward Pressure on Plan Funding: If plans can no longer inflate withdrawal liability artificially, they may need to adjust minimum-funding rates or negotiate higher employer contributions to close unfunded gaps.
Inter-Circuit Harmony and Tension: Aligns with Second and Seventh Circuit skepticism of conservative bias but uniquely articulates the explicit 50/50 probability test, potentially spurring Supreme Court interest should other circuits diverge.

Complex Concepts Simplified

Withdrawal Liability: When an employer leaves a multiemployer pension plan, it must pay its share of the plan’s unfunded vested benefits (promises to retirees not yet backed by assets). Think of it as paying off one’s tab before leaving the restaurant.
Discount/Interest Rate: The lower the rate, the larger the present-day payment required (because the money is assumed to earn less in the future). A 2 % rate means you need a much bigger pot today than if you assume 8 % growth.
Minimum Funding vs. Withdrawal Liability: Minimum funding is an ongoing annual contribution schedule; withdrawal liability is a one-time exit bill. The time horizon often differs, but both must rest on reasonable, best-estimate assumptions.
Unfunded Vested Benefits (UVBs): Promised pension payments that exceed current assets. UVBs are the “gap” the plan hopes investment returns and future contributions will close.
Actuary’s “Best Estimate”: Not the court’s or an expert’s hindsight view, but the actuary’s own good-faith midpoint forecast, free from external policy agendas.

Conclusion

Ace-Saginaw Paving sets a clear, structured standard for ERISA withdrawal-liability calculations: an actuary’s assumptions must aim for neutrality, not strategy. By insisting that the “best estimate” equate to roughly a 50/50 risk balance, the Sixth Circuit curbs the temptation of pension funds to weaponize discount rates as withdrawal deterrents or risk-transfer devices. Equally important, the Court preserves professional actuarial discretion, allowing deviations from minimum-funding rates where genuinely justified by plan-specific factors.

Going forward, pension funds, actuaries, and employers should expect:

Heightened documentation of actuarial reasoning, emphasizing statistical probabilities and plan-tailored data.
Closer scrutiny in arbitration of any disparity between minimum-funding and withdrawal-liability rates.
Potential legislative or regulatory responses if widespread funding shortfalls emerge once conservative rate cushions disappear.

In short, Ace-Saginaw Paving reaffirms that, under ERISA, actuarial science — not financial gamesmanship — governs how much a departing employer must pay.