“The 50/50 Best-Estimate Rule” under ERISA § 1393:
A Comprehensive Commentary on Ace-Saginaw Paving Co. v. Operating Engineers Local 324 Pension Fund, 25 F.4th 1288 (6th Cir. 2025)

Introduction

Ace-Saginaw Paving Company (“Ace”) partially withdrew from the multi-employer Operating Engineers Local 324 Pension Fund (“the Fund”) in 2018. The Fund’s actuary used a 2.27 % withdrawal-interest (discount) rate, resulting in liability of ≈ $16.4 million. Ace argued that the rate should mirror the Fund’s 7.75 % minimum-funding rate, pegging liability at ≈ $6.3 million. Arbitration and the district court sided with Ace; the Fund appealed, and Ace cross-appealed on remedy and fees.

The Sixth Circuit affirms that the actuary violated ERISA § 1393(a)(1) because the assumptions were not the actuary’s “best estimate” of plan experience. In doing so, the court articulates a clear working rule: an actuary’s withdrawal-interest assumption must reflect a roughly 50/50 probability of over- and under-estimation (“the 50/50 Best-Estimate Rule”). Conservative “padding” motivated by policy or risk-shifting concerns fails the statute. The court also clarifies the available remedy and declines to award appellate fees.

Summary of the Judgment

• Violation of § 1393(a)(1): The actuary chose the PBGC annuity rate (2.27 %), knowing it would overstate liability in 77-95 % of scenarios. Such a consciously conservative assumption is not “the actuary’s best estimate.”
• Standard Reaffirmed: ERISA imposes a two-part test—reasonableness and best-estimate. Even a facially reasonable assumption fails if the actuary does not believe it is the most accurate predictor of plan experience.
• Remedy: The court does not automatically substitute the 7.75 % minimum-funding rate. Instead, the Fund must recalculate using assumptions that (a) are reasonable, and (b) represent the actuary’s own, unbiased best estimate tailored to the plan—allowing differences from minimum-funding assumptions only if they enhance accuracy.
• Attorneys’ Fees: No fees awarded; the appeal was not frivolous and both sides partially prevailed.

Analysis

1. Precedents Cited and Their Influence

1. Concrete Pipe & Prod. v. Construction Laborers Pension Trust, 508 U.S. 602 (1993)
   • Established that actuarial assumptions must be “reasonable” and “the actuary’s best estimate,” emphasizing the actuary’s neutrality.
   • Sixth Circuit uses this to underscore that policy-driven manipulation is forbidden.
2. Sofco Erectors, Inc. v. Ohio Operating Engineers Pension Fund, 15 F.4th 407 (6th Cir. 2021)
   • Rejected use of a rote PBGC rate divorced from plan experience.
   • Provided analytical framework; court here extends Sofco by articulating the 50/50 rule and clarifying remedy limits.
3. Rhoades, McKee & Boer v. United States, 43 F.3d 1071 (6th Cir. 1995) & Chicago Truck Drivers Pension Fund v. CPC Logistics, 698 F.3d 346 (7th Cir. 2012)
   • Warned against trustees’ or sponsor’s influence; court finds Feldman improperly let policy concerns drive the rate.
4. Board of Trustees v. Eberhard Foods, 831 F.2d 1258 (6th Cir. 1987); Masters, Mates & Pilots v. USX, 900 F.2d 727 (4th Cir. 1990)
   • Accepted conservative rates when grounded in actuarial judgment; Ace decision distinguishes procedurally legitimate conservatism from policy-driven padding.
5. Other references: Combs v. Classic Coal, United Mine Workers v. Energy West, National Retirement Fund v. Metz Culinary—used chiefly to illustrate risk allocation and manipulation dangers.

2. Court’s Legal Reasoning

The court dissects § 1393(a)(1) into three cumulative requirements:

1. Actuary’s Estimate – must emanate from the actuary, free of sponsor/trustee diktat.
2. Best Estimate – the actuary must actually believe the assumption is the most accurate predictor; a “conservative cushion” breaches this prong.
3. Plan-Specific Experience – assumption must reflect the unique attributes of the plan.

Applying these, the Sixth Circuit highlighted two smoking guns:

• 2012 Letter – actuary openly sought to deter withdrawals by lowering the interest rate.
• 2019 Letter & Testimony – actuary relied on Horizon survey probabilities showing a 77-95 % chance of overfunding; thus, he knew he was not at 50/50.

The Fund’s risk-shifting justification—protect remaining employers from downside—was rejected because ERISA already balances interests via withdrawal liability; actuaries cannot rebalance that statutory bargain.

3. Impact on Future Litigation and Pension Practice

• Codifies the “50/50 Best-Estimate Rule.” Actuaries must aim for an even probability of over-/under-funding when choosing discount rates. Anything materially skewed invites challenge.
• Limits “PBGC-rate default.” Funds may still use PBGC rates, but only if demonstrably the best estimate for that plan. Automatic adoption is perilous.
• Encourages documentation of subjective belief. Actuaries should memorialize why the chosen rate is believed to be most accurate—omitting policy considerations.
• Remedy Guidance. Courts need not impose minimum-funding rates; instead, remand for a compliant recalculation while permitting actuarial nuances that enhance accuracy.
• Fee-shifting Caution. Appeals raising genuine legal uncertainty won’t necessarily trigger § 1451(e) fees, even for prevailing parties.

Complex Concepts Simplified

Multi-employer Pension Plan

A single pension trust funded by multiple unrelated employers, typically under a collective bargaining agreement.

Unfunded Vested Benefits (UVBs)

The shortfall between promised benefits and assets set aside to pay them.

Withdrawal Liability

The lump-sum (payable in installments) a withdrawing employer must contribute to cover its share of UVBs.

Withdrawal-Interest (Discount) Rate

The assumed investment return used to convert future benefit obligations into a present-value withdrawal liability.

Minimum-Funding Rate

The investment return assumption used for ongoing contribution requirements; may differ from withdrawal rate if actuarially justified.

PBGC Annuity Rate

Rates published by the Pension Benefit Guaranty Corporation reflecting annuity purchase prices; generally conservative.

50/50 Best-Estimate Rule

Articulated here: the chosen assumption should present approximately equal likelihood of plan returns exceeding or falling short—no built-in policy cushion.

Conclusion

Ace-Saginaw cements a pivotal clarification of ERISA § 1393: withdrawal-interest assumptions must be the actuary’s own, good-faith, plan-specific “best estimate,” reflecting a balanced (50/50) risk of error. Policy-based conservatism, even if well-intentioned to protect remaining employers, is unlawful. While courts may permit actuaries to diverge from minimum-funding rates, any divergence must demonstrably improve accuracy, not advance strategic objectives.

For practitioners, the decision underscores meticulous record-keeping of actuarial judgment, vigilance against trustee influence, and strategic caution in defending PBGC-rate methodologies. For courts, it offers a clear analytic roadmap and a flexible, yet principled, remedial template. Ultimately, the ruling protects the delicate equilibrium ERISA strikes between withdrawing employers, ongoing contributors, and retirees.