Manhattan Ford Lincoln, Inc. v. UAW Local 259 Pension Fund

• Decision Date: 03 July 2018
• Docket Number: Civ. No. 17-5076 (KM)(MAH)
• Citation: 331 F.Supp.3d 365
• Parties: MANHATTAN FORD LINCOLN, INC., Plaintiff, v. UAW LOCAL 259 PENSION FUND, Defendant.
• Court: U.S. District Court — District of New Jersey

331 F.Supp.3d 365

MANHATTAN FORD LINCOLN, INC., Plaintiff,

v.UAW LOCAL 259 PENSION FUND, Defendant.

Civ. No. 17-5076 (KM)(MAH)

United States District Court, D. New Jersey.

Signed July 3, 2018

Jennifer Lynn Del Medico, Jones Day, New York, NY, for Plaintiff.

William T. Josem, Cleary & Josem, LLP, Philadelphia, PA, for Defendant.

Kevin McNulty, United States District Judge

The plaintiff, Manhattan Ford Lincoln, Inc. ("Manhattan Ford") brings this action against UAW Local 259 Pension Fund ("Pension Fund") pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq. as amended by the Multi-Employer Pension Plan Amendment Act of 1980 ("MPPAA"), 29 U.S.C. §§ 1381 - 1461.¹ This case arises from Manhattan Ford's withdrawal from the Pension Fund, a multiemployer pension plan.² The Arbitrator upheld the Pension Fund's calculation of about $2.55 million in withdrawal liability. Manhattan Ford now challenges that decision.

Two essential questions are raised:

(1) As a matter of ERISA law, must a pension plan's actuary use identical actuarial assumptions to calculate the plan's satisfaction of minimum funding requirements and its unfunded vested benefits ("UVB") for withdrawal liability?

2) Assuming the answer to question 1 is "no," did the Arbitrator err in this case when he found that the discount rate applied by the Pension Fund's actuary to determine Manhattan Ford's withdrawal liability, the Segal Blend, did not render the actuarial assumptions "in the aggregate, unreasonable (taking into account the experience of the plan and reasonable expectations)"? See 29 U.S.C. § 1401(a)(3)(B)(i).

Now before this Court are Manhattan Ford's motion for summary judgment and the Pension Fund's cross-motion for summary judgment. For the reasons discussed below, the two questions raised in this case are answered in the negative. Accordingly, Manhattan Ford's motion for summary judgment is denied, and the Pension Fund's cross-motion for summary judgment is granted. I will therefore affirm the Arbitrator's Interim and Final Awards.³

I. Background⁴

Manhattan Ford was a contributing employer to the Pension Fund, a multiemployer defined benefit pension plan.⁵ (DSMF ¶ 1.) As such, it was required to make contributions to fund the Pension Fund. In 2014, Manhattan Ford's contributions to the Pension Fund ceased. (Id. ) This, everyone agrees, constituted a complete withdrawal from the Pension Fund. That withdrawal triggered Manhattan Ford's withdrawal liability-i.e., its obligation to pay in to the Fund to ensure that any unfunded pension liabilities were covered, and that the employers who remained in the plan would not be unfairly burdened.

Pension funds, through their actuaries, necessarily make assumptions or predictions. These include estimates of future contributions, investment return, and liabilities, all of which depend on a number of actuarial factors. To simplify a bit, the Plan's estimated future liabilities are reduced to a present value using a percentage discount rate (which is itself an actuarial assumption). The resulting figure is used to determine whether the Plan's assets are sufficient to meet its obligations.

A. The 7.5% funding rate and the Segal Blend withdrawal rate

Diane Gleave of the Segal Company, the Pension Fund's actuary, calculated the minimum funding level of the plan and Manhattan Ford's withdrawal liability using the following discount rates:

The Funding Rate (used to calculate minimum required funding). To calculate the minimum required funding of the Pension Fund, Ms. Gleave used a funding discount rate of 7.5%. (Id. at ¶ 4.) That funding rate was developed by "employing the ‘building block’ method, looking to the asset mix of the [Pension] Fund's investment portfolio and analyzing the likely return for each asset class." (Final Op. at 7.⁶ See Gleave Dep. 10:18-11:7, 11:14-:29.) Manhattan Ford does not dispute, and indeed embraces, that 7.5% rate. Based on the 7.5% funding rate, the Segal firm reported that the Pension Fund was "fully funded- i.e. that, ‘assuming experience is consistent’ with its assumptions, ‘the current value of [the Pension Fund's] assets plus future investment earnings and contribution income is projected to exceed benefit payments and administrative expenses." (2014 Actuarial Valuation at 8.)⁷ Indeed, the Pension Fund's funded percentage for 2014 was 111.7%. (Final Op. at 7. See 2014 Actuarial Valuation at 7,10.)

The Segal Blend (used to calculate withdrawal liability). To calculate the Pension Fund's UVB at the time of Manhattan Ford's withdrawal,⁸ Ms. Gleave used a different discount rate, the Segal Blend.⁹ (DSMF ¶ 3.) The Segal Blend has been used by the Pension Fund for purposes of calculating withdrawal liability for more than 25 years. (Id. ¶ 7; Joint Stip. of Facts ¶ 11.) It represents a blend of interest rates prescribed by the Pension Benefit Guaranty Corporation ("PBGC"),¹⁰ and the 7.5% funding rate. More specifically, the Segal Blend "values vested benefit liabilities based on: 1) PBGC, or risk-free rates, to the extent that there are assets on hand that are attributable to the withdrawing employer; and 2) long-term funding assumptions used for minimum funding purposes to the extent such assets are not on hand." (DSMF ¶ 10.) In setting the Segal Blend rate, Ms. Gleave considered two sets of liabilities, and then blended the rates as to those liabilities. (Arb. Hrg. Tr. 92:10-:19.)¹¹ Gleave first valued a portion of the Pension Fund's liabilities using the long-term funding assumption of 7.5% (i.e. , the same rate as the "funding rate" that was used to value the minimum funding). (DSMF ¶¶ 3, 10.) Gleave then valued another portion of the Pension Fund's liabilities using risk-free interest rates published by the PBGC.¹² (Id. )¹³ "Mathematically, the Segal Blend is the equivalent of using an ‘effective’ discount rate that falls somewhere between the PBGC rates and the investment return assumption used for funding purposes." (Final Op. at 8.) Using the Segal Blend rate, Ms. Gleave calculated the present value of vested plan benefits for withdrawal liability at about $117.8 million. (2014 Actuarial Valuation at 10).¹⁴ That figure minus the market value of current assets ($86,105,701) yielded a $31,737,875 figure for UVB. (Id. at 8). Of that UVB total, about $2.55 million was allocated to Manhattan Ford.¹⁵ See infra .

B. The Pension Fund's Assessment of $2.55 Million Withdrawal Liability

Based on Manhattan Ford's cessation of contributions in 2014, the Pension Fund found that Manhattan Ford had completely withdrawn from the Fund. On December 10, 2014, the Pension Fund issued a Notice and Assessment of Withdrawal Liability. (Compl. ¶ 25; Ans. ¶ 25.) Two months later, on February 20, 2015, the Pension Fund sent an Amended Notice to Manhattan Ford, assessing a withdrawal liability of $2,553,692 as of the December 31, 2014 withdrawal date. (Compl. ¶ 25, Ans. ¶ 25; DSMF ¶ 2.) Under that amended assessment, the $2,553,692 withdrawal liability was to be paid in quarterly payments of $99,640.50 over eight years, with a final payment of $78,662.04. (DSMF ¶ 2. See W. L. Report at 7.)

All seem to agree that if Gleave had used the 7.5% funding rate (rather than the Segal Blend) to value the Pension Fund's liability, Manhattan Ford's withdrawal liability would have been $0 (rather than $2.55 million). (Final Op. at 7.) On April 13, 2015, Manhattan Ford challenged the revised assessment on just that basis. The Pension Fund, said Manhattan Ford, was required to use the 7.5% funding rate, not the Segal Blend, to compute Manhattan Ford's withdrawal liability. (Compl. ¶ 26; Ans. ¶ 26.) See 29 U.S.C. § 1399(b)(2)(A). On May 26, 2015, the Pension Fund rejected Manhattan Ford's challenge. (Compl. ¶ 27; Ans. ¶ 27.) See 29 U.S.C. § 1399(b)(2)(B).

C. Arbitration

On July 20, 2015, Manhattan Ford timely initiated arbitration proceedings pursuant to 29 U.S.C. § 1401(a)(1). (Compl. ¶ 28; Ans. ¶ 28.)

Before the Arbitrator, Michael D. McDowell, Esq., Manhattan Ford disputed the Pension Fund's computation of withdrawal liability. On July 25, 2016, the Arbitrator issued an Interim Award denying both Manhattan Ford's motion for summary judgment and the Pension Fund's cross-motion for summary judgment. (See Interim Op. at 18; Compl. ¶ 29; Ans. ¶ 29.) The matter went to a hearing on December 6, 2016. At that hearing, the Arbitrator heard testimony from three witnesses: 1) Darren French, Manhattan Ford's actuarial expert; 2) Ms. Gleave, the Pension Plan's actuary from The Segal Company; and 3) Thomas Levy, the Pension Plan's actuarial expert from The Segal Company. See (Arb. Hr. Tr.) The parties also presented some seven exhibits. (See Final Op. at 4-5.)¹⁶ On June 14, 2017, the Arbitrator issued a Final Award, rejecting Manhattan Ford's challenge to the Pension Fund's withdrawal liability determination. (Compl. ¶ 30; Ans. ¶ 30; Final Op.)

D. This Action and the Cross-Motions for Summary Judgment

On July 12, 2017, pursuant to 29 U.S.C. § 1401(b)(2), Manhattan Ford filed the present action, asking this Court to vacate the arbitrator's interim and final awards in their entirety. (Compl. 13.) On September 6, 2017, the Pension Fund filed its Answer, Affirmatives Defenses, and Counterclaim. (ECF no. 17.) On September 12, 2017, Manhattan Ford filed an Answer to the Pension Fund's Counterclaim. (ECF no. 19.)

On October 16, 2017, Manhattan Ford filed a motion for summary judgment requesting that this Court vacate the Pension Fund's assessment of withdrawal liability and "the arbitration award that sustained it." (Pl. Brf. at 25.)¹⁷ On November 20, 2017, the Pension Fund filed its opposition and a cross-motion for summary judgment (ECF nos. 23-2, 23-3) asking this Court to affirm the assessment of withdrawal liability against Manhattan Ford and the arbitration award sustaining it. (Def. Brf. at 22.) On December 11, 2017, Manhattan Ford filed a reply in support of its own motion and its opposition to the...