The U.S. Supreme Court recently overturned the decades-old
Chevron doctrine of judicial deference to a federal agency's
interpretation of an ambiguous statute. (See "Go Fish! U.S. Supreme Court Overturns 'Chevron
Deference' to Federal Agencies: What It Means for
Employers") Following the decision in Loper Bright
Enterprises v. Raimondo, courts must exercise independent
judgment in reviewing the agency's interpretation of the
statute. Courts may apply the standard set forth in Skidmore v.
Swift & Co., 323 U. S. 134 (1944), in which a court can
uphold a regulation if it finds the agency's interpretation of
the statute persuasive.
The Loper Bright decision could prove to have an immediate
impact on the actions of the Pension Benefit Guaranty Corporation
(PBGC). The PBGC is a federal agency with regulatory authority over
the withdrawal liability provisions in Title IV of ERISA. Two
recent actions taken by the PBGC that are under current scrutiny
figure to be challenged under Loper Bright: the Special
Financial Assistance (SFA) plan asset phase-in and withdrawal
liability interest rate assumption regulations.
Conditions for MEPPs Receiving Special Financial Assistance
(SFA)
The American Rescue Plan Act of 2021 (ARPA) provided for SFA for
troubled multiemployer pension plans (MEPPs). The SFA program will
provide between $74 and $91 billion in assistance to eligible
MEPPs. Pursuant to ARPA, Congress delegated authority to the PBGC
to issue "reasonable conditions" for SFA applications and
for withdrawal liability calculated by SFA recipients. On July 8,
2022, the PBGC published a final rule detailing the eligibility
criteria, application process, and restrictions and conditions
associated with a MEPPs' use of SFA funds.
As previously discussed in "More Bad News for Employers in the PBGC Final
Rule," the final rule expresses PBGC's opinion that
"payment of an SFA was not intended to reduce withdrawal
liability or to make it easier for employers to withdraw."
Consistent with these concerns, the PBGC's final rule mandated
that recipient MEPPs "phase-in" the SFA as a plan asset
over a 10-year period. This interpretation will significantly (and
arguably artificially) increase the amount of many employers'
withdrawal liability. It is anticipated that the final rule will be
challenged in the near future.
Withdrawal Liability Interest Rate
Assumption
The interest rate assumptions used by an MEPP to calculate
withdrawal liability can have a massive impact on the amount of an
employer's liability. In 1980, when amending Title IV of ERISA
by enacting the Multiemployer Pension Plan Amendments Act (MPPAA),
Congress delegated authority to the PBGC to issue regulations
relating to these critical interest rates assumptions. To date,
PBGC has not done so.
Specifically, in response to several recent court rulings (See
"Segal Blend' Withdrawal Liability Calculation
Violates ERISA, Court Holds in Milestone Decision" and
"Withdrawal Liability Interest Rate Must Reflect
Projected Investment Return, D.C. Circuit Holds"), the
PBGC issued a proposed regulation to allegedly "make clear
that use of 4044 rates [the settlement interest rate], either as a
standalone assumption or combined with funding interest assumptions
represents a valid approach to selecting an interest rate
assumption to determine withdrawal liability in all
circumstances." Even more problematic, the proposed rule
states that a "plan's actuary would be permitted to
determine withdrawal liability under the proposed rule without
regard to section 4213(a)(1) [including foregoing the
reasonableness and actuarial best estimate requirements]." The
proposed rule directly contradicts recent judicial interpretations
of the referenced statute that was enacted as part of MPPAA over 44
years ago.
Further, the PBGC's proposed rule ignored the critical issue of
whether the selection of an interest rate that ignores the
statutory reasonableness and best estimate requirements satisfies
other provisions of ERISA, such as Section 4221(a)(3)(B)(i). In
this regard, and consistent with Loper Bright, several
Circuit Courts of Appeal have already exercised their independent
judgment to interpret the statutory "best estimate of
anticipated experience under the plan" language as referring
to the "unique characteristics of the plan" such as the
plan's investment asset mix and the expected rate of return on
such assets. These recent Circuit Court decisions therefore
directly contradict the PBGC's proposed regulations. Any final
regulation promulgated by PBGC that follows the proposed
regulations would inevitably be challenged and resolved under the
less-deferential standard established under Loper
Bright.
Final Thoughts
The exact impact of Loper Bright on agency actions in
general and the PBGC actions discussed above remains to be seen.
Since Skidmore is still good law, a court that is
sympathetic to an agency's position could still opt to defer to
that interpretation. Courts will no doubt be busy with a plethora
of suits challenging administrative actions. The two current
hot-button topics discussed above seem destined to be challenged
and resolved by judges in a post-Chevron world. The
resolution of these issues will have massive implications for
employers with significant potential withdrawal liability
exposure.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.