Combs v. Classic Coal Corp.

Decision Date26 April 1991
Docket NumberNo. 90-7066,90-7066
Citation931 F.2d 96
Parties, 13 Employee Benefits Ca 1993 Harrison COMBS, et al. v. CLASSIC COAL CORPORATION, Appellant.
CourtU.S. Court of Appeals — District of Columbia Circuit

Appeal from the United States District Court for the District of Columbia (Civil Action No. 84-01562).

John H. Smither, Houston, Tex., with whom James R. Layton was on the brief, Washington, D.C., for appellant.

Terrence M. Deneen, with whom, William F. Hanrahan, Lonie A. Hassel, Washington, D.C., and David W. Allen were on the brief, Baltimore, Md., for appellees.

Before MIKVA, Chief Judge, SENTELLE, and HENDERSON, Circuit Judges.

Opinion for the Court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge:

Classic Coal Corporation ("Classic" or "appellant") appeals the district court's grant of summary judgment in favor of trustees of the United Mine Workers of America 1950 and 1974 Pension Plans ("Trustees" or "appellees"). Upon Classic's withdrawal from the Plans, the Trustees assessed almost $2 million in withdrawal liability against Classic. Classic demanded arbitration on the amount assessed. The arbitrator determined that the actuarial assumptions used in calculating Classic's liability were unreasonable. The district court granted summary judgment, overturning the arbitration order and holding that the actuarial assumptions were reasonable in the aggregate within the meaning of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. Sec. 1393(a) (as amended by the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA")). We affirm.

A. Factual Summary

Appellees are trustees of the United Mine Workers of America ("UMWA") 1950 and 1974 Pension Plans ("Plans"), which are multiemployer pension benefits plans maintained pursuant to collective bargaining agreements between UMWA and the Bituminous Coal Operators Association. Numerous employers contribute to the Plans on behalf of their employees, and the Plans, in turn, disburse benefits to eligible plan participants.

Appellant Classic Coal engaged in coal mining and other related activities from March 1978 until March 27, 1981, and, as a signatory to the collective bargaining agreements with UMWA, made contributions to the Plans during this period. In 1981, however, Classic ceased all covered operations and withdrew from the Plans. The MPPAA provides that, upon withdrawal, a participating employer must pay withdrawal liability. This liability represents the withdrawing employer's proportionate share of the plan's unfunded vested benefits ("UVB"), which are those benefits that are nonforfeitable by the plan's participants, but are as yet unfunded by the plan.

The MPPAA prescribes statutory methods for calculating withdrawal liability. This calculation involves the allocation of a plan's UVB among contributing employers. See 29 U.S.C. Sec. 1391. To make this allocation, a plan's trustees must first calculate the plan's total UVB, defined as the difference between the actuarial present value of nonforfeitable pension benefits earned by employees and the value of plan assets actually on hand. 29 U.S.C. Sec. 1393(c). Benefits in a plan vest after a participant completes a specified term of service covered by the plan. 29 U.S.C. Sec. 1053. Vested benefits include amounts payable in the future to participants who have not yet retired as well as amounts currently being paid to retirees or their beneficiaries. Thus, the trustees' actuary must estimate the present value of the plan's liability for both vested and non-vested, accrued benefits. See 26 U.S.C. Sec. 412(c)(9); 29 U.S.C. Secs. 1082(c)(9), 1393(b)(1).

To determine the present value of a plan's liability for vested benefits, the actuary employs certain assumptions. 29 U.S.C. Sec. 1393(a). Most pertinently to the present case, because the Plans will be funded in part by investment earnings on current assets and in part by assets the Plans are expected to acquire in the future, their actuaries must select an interest rate assumption to apply in discounting the liability for future benefit payments. Increasing the interest rate assumption decreases the employer's withdrawal liability. In calculating Classic's withdrawal liability, the Trustees used a 5.5% interest rate assumption, the same rate they routinely used for the long-range funding determinations of the individual Plans. The Trustees fixed Classic's withdrawal liability to the 1950 Plan at $877,406.76 and to the 1974 Plan at $1,092,094.73.

Classic protested the assessment and requested a reduction of its liability, asserting that the calculation used an unreasonable interest rate assumption. The Trustees refused to reevaluate the withdrawal liability, stating that Classic had failed to furnish evidence of the assumption's unreasonableness. It appears to be undisputed that the 5.5% assumption is significantly lower than the Plans' actual rates of return. After Classic's withdrawal, in response to suggestions from its actuaries and assistant treasurer, the Plans' Trustees increased the interest rate assumption for the 1950 Plan from 5.5% to 6.5%. This increase, however, applied retroactively to the Plan year following Classic's withdrawal.

On August 23, 1983, Classic filed a demand for arbitration pursuant to 29 U.S.C. Sec. 1401(a), which provides that disputes over withdrawal liability must be resolved initially in arbitration. After hearing, the arbitrator ruled for Classic, finding that the Plans' actuarial assumptions and methods were unreasonable in the aggregate under 29 U.S.C. Sec. 1393(a)(1).

B. The Arbitrator's Decision

In arbitration proceedings, the trustees' calculations "are presumed correct" unless the employer "shows by a preponderance of the evidence" that the determination was unreasonable or clearly erroneous. 29 U.S.C. Sec. 1401(a)(3)(A), (B). Because of the inherent ambiguity of the term, the arbitrator in this case expressed his willingness to accept a fairly wide range of "reasonableness" in making his Sec. 1393(a)(1) determination. Nevertheless, based on evidence from Classic's actuarial witness and "statements made in connection with the Plans' own deliberations," he determined that the 5.5% interest rate assumption for withdrawal liability was, on balance, unreasonable. He found that this rate, adopted for funding purposes in 1975 when the Plans had few assets to invest, did not reflect either the substantially higher interest rates available in June 1980, or the actual return on assets of approximately 9.2% realized in 1980.

Next, the arbitrator examined the Trustees' assertion that the 5.5% assumption was justified by the extended length of time over which returns for contributions would be received, but found that the evidence did not justify the length of the Trustees' actuary's projection. He further noted that the Trustees increased the interest rate assumption the year following Classic's withdrawal. Consequently, he determined that the Trustees had calculated the interest assumption at an unreasonably low rate.

Based upon his belief that an unreasonable interest rate assumption would affect the entire calculation package, the arbitrator concluded that the Trustees' actuarial assumptions, in the aggregate, were unreasonable under Sec. 1393(a)(1). Accordingly, he ordered the Trustees to recompute Classic's withdrawal liability using a higher interest rate--6.5% for the 1950 Plan and a "blended" assumption for the 1974 Plan. The Trustees then filed the present action in district court seeking reversal of the arbitrator's decision.

C. The District Court's Opinion

The district court determined that "the arbitrator unjustifiably failed to apply the presumption in favor of the correctness of the Plans' determinations, which were shown to be rationally supported, which is all the law requires." Memorandum and Order, Civ. No. 84-1562, at 17, 1990 WL 66583, citing 29 U.S.C. Sec. 1401(a)(3)(B). The court then held that, as a matter of law, the arbitrator improperly concluded that the Trustees' actuarial assumptions were "unreasonable in the aggregate." Id. at 18. The court further stated that "one assumption, no matter how unreasonable, may not be deemed to render the assumptions unreasonable in the aggregate," reasoning that it was Classic's burden to produce evidence of the unreasonableness of the other assumptions as well. Id. at 19.

The court also determined that the arbitrator should not have used post-1980 evidence to find the 1980 assumptions unreasonable. The court noted that forcing the Trustees to use evidence generated subsequent to the withdrawal would discourage the Trustees from making actuarial updates. This, the court concluded, "cannot be what Congress had in mind when it formulated the 'best estimate' language [in Sec. 1393(a)(1) ]." Id. at 18.

The district court, therefore, granted summary judgment in favor of the Trustees and reinstated the Trustees' original determination of withdrawal liability. This appeal followed.


In reviewing a grant of summary judgment, a legal rather than a factual determination, we consider de novo the same questions originally presented to the district court. See Beatty v. Washington Metropolitan Area Transit Authority, 860 F.2d 1117, 1119-20 (D.C.Cir.1988). In the present case we reach the same conclusion as the district court, although through somewhat different reasoning.

We review, as did the district court, the arbitrator's determination of whether the Trustees' "actuarial assumptions and methods [were], in the aggregate, ... reasonable." Under the statute,

the determination is presumed correct unless a party contesting the determination shows by a preponderance of evidence that--(i) the actuarial assumptions and methods used in the determination were, in the aggregate, unreasonable....

29 U.S.C. Sec. 1401(a)(3)(B)(i). 1 "In meeting this burden, the test is...

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