Multiemployer pensin plan withdrawals

[Guest lisbetf]

Here are the questions I have regarding assumptions used by multiemployer pension plans when they determine employer withdrawal liability.

1. How are the interest and mortality assumptions chosen? Is the interest rate generally tied to some index so that it "floats" as interest rates float? Or are interest rates fixed and changed periodically to reflect the current interest climate? I would suspect that the mortality table is fixed and changed periodically as needed, but would like imput on that also. Are the assumptions used to determine withdrawal liability typically put in the plan document?

2. What value of assets is typically used to determine the value of unfunded vested benefits? Market value or the actuarial value used to fund the plan?

Thanks for any help you can offer!

[Effen]

You might want to search the multiemployer board for this. I know there have been a few threads addressing this.

Basically, the assumptions can be all over. Many actuaries use the valuation rate as the basis for the calculation, but a floating index is also popular. I believe Segal uses the PBGC Plan Termination Rates for all of their clients.

Regarding assets, I think most people use Market, but I have seen a few that use the Actuarial value.

It generally comes down to past precedent. The Trustees should have a written policy that defines the methodology. It's possible that they don't remember doing one, but it may exist

[david rigby]

It generally comes down to past precedent. The Trustees should have a written policy that defines the methodology. It's possible that they don't remember doing one, but it may exist

I'm not sure what this paragraph means. Perhaps it refers only to the assets. "Precedent" may not be the best indicator for choosing actuarial assumptions or an asset valuation method.

[Effen]

By "Precedent" I was referring to the fact that any change from past practice could be challenged in court. Similar to a funding method, the method used to determine a particular employers withdrawal liability should not change without examining the impact.

Lets say the Trustees have always used the valuation interest rate and the actuarial value of the assets to determine withdrawal liability. Now, when fixed income rates are low and the market value is generally below actuarial value the Trustees decided to change. If I were a contributing employer, who is considering withdrawing, I would argue that the change unfairly penalizes me. I think the Trustees would have to justify their decision to change their method in court.

So, all I was suggesting is that you shouldn’t just come in blind and establish a method. You really need to look and see what was done in the past, especially if you have had a previous withdrawal, with or without a liability assessed.

[mbozek]

A withdrawing employer has no recourse to the courts. An employer who questions the amount of wthdrawal liability must request mandatory arbitration.