Masters, Mates & Pilots Pension Plan v. USX Corp., s. 89-2652

Decision Date01 May 1990
Docket NumberNos. 89-2652,89-2653 and 89-2664,s. 89-2652
Citation900 F.2d 727
Parties, 12 Employee Benefits Ca 1249 MASTERS, MATES & PILOTS PENSION PLAN; Robert J. Lowen; James R. Hammer; F. Elwood Kyser; Ernest K. Swanson; Albert Groh; Allen Taylor; Edmond E. Davis, Franklin K. Riley; Edward Morgan; Herbert R. Ricklin; Larry J. Byers, Plaintiffs-Appellees, v. USX CORPORATION, Defendant-Appellant, v. PENSION BENEFIT GUARANTY CORP., Amicus Curiae (Two Cases). MASTERS, MATES & PILOTS PENSION PLAN; Robert J. Lowen; James R. Hammer; F. Elwood Kyser; Ernest K. Swanson; Albert Groh; Allen Taylor; Edmond E. Davis, Franklin K. Riley; Edward Morgan; Herbert R. Ricklin; Larry J. Byers, Plaintiffs-Appellants, v. USX CORPORATION, Defendant-Appellee, v. PENSION BENEFIT GUARANTY CORP., Amicus Curiae.
CourtU.S. Court of Appeals — Fourth Circuit

James Theodore Carney, II (argued), Pittsburgh, Pa., for defendant-appellant.

Jeffrey Steven Endick (argued), Pepper, Hamilton & Scheetz, Washington, D.C. (Barry S. Slevin, Pepper, Hamilton & Scheetz, Jeffrey B. Cohen, Washington, D.C., of counsel), for plaintiffs-appellees.

Israel Goldowitz (argued), Sr. Counsel, Pension Benefit Guar. Corp., Washington, D.C. (Carol Conner Flowe, Gen. Counsel, Jeanne K. Beck, Deputy Gen. Counsel, Deborah Bisco, Pension Benefit Guar. Corp., of counsel), for amicus curiae.

Before HALL, MURNAGHAN and WILKINS, Circuit Judges.

MURNAGHAN, Circuit Judge:

USX Corporation and the Masters, Mates & Pilots Pension Plan ("the Fund") (successor in interest to the Great Lakes & Rivers District and Maritime Pension Plan) dispute the amount of liability incurred by USX when it sustained a partial withdrawal from the Fund. The dispute presents us with the need to consider three aspects of a multiemployer pension plan's calculation of a withdrawing corporation's liability under the Multiemployer Pension Plan Amendments Act of 1980: (1) the valuation of the plan's assets; (2) the determination of the plan's interest rate assumption; and (3) the making of a revision to the plan's original assessment of the withdrawing corporation's liability.

I.

The Fund, a multiemployer pension plan, covers the employees of USX (formerly U.S. Steel) who work on vessels operating on the Great Lakes and the Monongahela River. During the 1980's, the number of USX employees on those vessels dropped significantly, precipitating a decline in USX's contribution to the Fund. The decline was substantial enough to cause USX to sustain a partial withdrawal from the Fund, as defined by 29 U.S.C. Sec. 1385.

On February 15, 1985, the Fund notified USX that it had sustained a partial withdrawal from the Fund as of December 31, 1984, and that USX's partial withdrawal liability was $434,559. On May 10, 1985, USX filed a request for review of the liability assessment, objecting to, among other things, the Fund's use of a moving market average to value its assets and its use of a 6.5% interest rate assumption. Although the Fund modified its assessment in response to some of USX's objections, the Fund refused to abandon either its valuation methodology or its interest rate assumption.

USX appealed the assessment to arbitration. Arbitrator Jack Clarke was selected to hear the matter and a hearing was scheduled for January 20 and 21, 1986. The hearing was later postponed, by agreement of the arbitrator and counsel, when the Fund indicated that it was revising the assessment.

On April 23, 1986, the Fund revised its earlier assessment, increasing it to $548,996. The revision computed USX's liability as of a December 31, 1981, valuation date, rather than a December 31, 1982, valuation date, which had been used in the original demand.

The arbitrator, after hearing the case in January 1987, required the Fund to make two changes to its assessment. First, he decided that the Fund must use the assessment that it had originally calculated because the Fund delayed too long in issuing a revision. Second, he decided that the Fund's use of the moving market average for valuation purposes was unreasonable. The arbitrator did affirm the Fund's use of the 6.5% interest rate assumption.

The United States District Court for the District of Maryland enforced the arbitrator's award but overturned the arbitrator's decision that the use of the moving market average was unreasonable. Both parties have appealed from the district court's decision.

USX argues first that the district court should not have reversed the arbitrator's decision that the Fund's use of the moving market average was unreasonable and second that neither the district court nor the arbitrator should have considered the Fund's 6.5% interest rate assumption reasonable. The Fund opposes both of USX's arguments and further contends that the district court should have reversed the arbitrator's refusal to consider its revision of the assessment.

II.

Congress enacted the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA"), Pub.L. No. 96-364, 94 Stat. 1221 (1980) (codified into ERISA at 29 U.S.C. Secs. 1381-1461), to protect the financial base of pension plans from the erosion that occurred when a participating employer withdrew from a multiemployer pension plan that contained unfunded vested benefits ("UVBs"). 1 See H.R.Rep. No. 96-869, Part I, 96th Cong., 2d Sess. 60, reprinted in 1980 U.S.Code Cong. & Admin.News 2918, 2928. Prior to MPPAA, an employer's withdrawal from a multiemployer plan burdened the remaining contributing employers with an increased contribution rate--a larger share of the UVBs had to be covered by each remaining employer. As the cost of participating in the plan and covering the UVBs increased for each remaining employer, the incentive for the remaining employers to leave the plan was heightened.

MPPAA establishes liability for complete and partial withdrawals so that an employer who withdraws from a pension plan pays its proportionate share of the plan's UVBs. See 29 U.S.C. Sec. 1381 (1982). The amount of a withdrawing employer's liability is initially assessed by the plan sponsor, here the Fund. Id. Sec. 1399(b)(1). Within ninety days after receiving the assessment, the employer may request the plan sponsor to review the determination of liability. Id. Sec. 1399(b)(2)(A). After a "reasonable review of any matter raised," the plan sponsor must notify the employer of its decision. Id. Sec. 1399(b)(2)(B); see Robbins v. Lady Baltimore Foods, Inc., 868 F.2d 258, 261 (7th Cir.1989) (explaining MPPAA scheme in detail). In the event of a dispute, the employer may then initiate arbitration. 29 U.S.C. Sec. 1401(a).

III.

When computing an employer's withdrawal liability, a plan sponsor must compute the value of the plan's assets. The employer is assessed a proportionate share of the UVBs (the amount by which the value of vested benefits exceeds the value of the plan's assets). The lesser the value of the plan's assets, the more that a withdrawing employer will get charged.

USX contends that the value of the Fund's assets, calculated by way of a moving market average ("MMA"), is fictitious. The Fund's use of MMA resulted in an increase in the assessment against USX of almost $200,000, or 75% more than what would have been assessed if the Fund had used current market value to value its assets. 2

MMA values plan assets by computing the average market value of those assets over a certain time period. The Fund here used a five-year MMA. Thus, instead of using the current market value as the true value of its assets, the Fund valued its assets by using the average value of those assets over the past five years, with each year's market value equally weighted in the computation. 3 A five-year MMA is a conservative approach to asset valuation, as it takes account of changes in asset value at the rate of 20% per year; in other words, an increase or decrease in the Fund's assets will only be fully incorporated into the valuation after five years. Thus, the MMA approach moderates the impact of severe fluctuations in the stock market.

The arbitrator held that the Fund's use of MMA was unreasonable as applied to the computation of an employer's withdrawal liability. He stated that using MMA when determining an employer's proportionate share of UVBs shifts the burden of paying the UVB expense from one employer to another, except in the rare instance when the MMA value and the market value are the same. He reasoned that if the MMA undervalues the assets then a withdrawing employer will get charged a higher assessment without ever making it up later as he is withdrawing from the plan. He essentially concluded that the MMA is unreasonable per se to compute withdrawal liability assessments.

The district court reversed the decision of the arbitrator. The court noted that the record established that there was a genuine difference of opinion among actuaries regarding whether MMA provides a sounder basis for valuation. In light of such a difference of opinion, the district court concluded that ERISA's presumption of the Fund's actuarial correctness applied. See 29 U.S.C. Sec. 1401(a)(3)(B)(i). It also noted that the arbitrator did not make a finding that MMA caused a substantial undervaluation under the particular circumstances. The court enforced the arbitrator's award and ordered that the assessment be calculated according to the MMA value as initially used by the Fund rather than the current market value of the assets.

The Fund argues for affirmance of the district court's conclusion that the use of MMA is reasonable, however its primary argument rests on different grounds. The Fund contends that an inquiry into the reasonableness of an actuarial assumption for withdrawal liability purposes should not be undertaken if that actuarial assumption is reasonable for funding purposes.

The Fund constructs the following statutory argument to show why such is the case: (1) 29 U.S.C. Sec....

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