Chevron Deferent Expected Effects on Withdrawal Liability

The U.S. Supreme Court recently overturned the decades-old Chevron doctrine, which requires courts to defer to a federal agency’s interpretation of an ambiguous statute. (See “Go Fish! U.S. Supreme Court Overturns ‘Chevron Deference’ Against Federal Agencies: What It Means for Employers”). After deciding Loper Bright Enterprises v. Raimondocourts must exercise independent judgment in reviewing an agency’s interpretation of a statute. Courts may apply the standard set forth in Skidmore v Swift & Co.323 U.S. 134 (1944), under which a court may uphold a regulation if it finds the agency’s interpretation of the statute persuasive.

This Loper Light The decision could 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 payroll liability provisions of Title IV of ERISA. Two recent actions by the PBGC that are currently under review are expected to be challenged under Loper Bright: provisions relating to the assumption of interest on liabilities under a special financial assistance (SFA) plan and the phase-in of assets.

MEPP’s Special Financial Assistance (SFA) Conditions

The American Rescue Plan Act of 2021 (ARPA) provided SFA for troubled multiemployer retirement plans (MEPPs). The SFA program will provide between $74 billion and $91 billion in relief to MEPP eligibles. Under ARPA, Congress gave the PBGC the authority to issue “reasonable terms” for SFA applications and calculated payment liability for SFA recipients. On July 8, 2022, the PBGC published a final rule detailing the eligibility criteria, application process, and limitations and conditions associated with the use of SFA funds through the MEPP.

As previously discussed in “More Bad News for Employers in the PBGC Final Rule,” the final rule reflects the PBGC’s view that “the SFA payment was not intended to reduce the payout obligation or to make it easier for employers to pay.” Consistent with these concerns, the PBGC final rule mandated that MEPP recipients “phase in” the SFA as a plan asset over a 10-year period. This interpretation would significantly (and likely artificially) increase the amount of many employers’ payout obligation. The final rule is expected to be challenged in the near future.

Payment Obligation Interest Rate Assumption

The interest rate assumptions used by the MEPP to calculate the payroll obligation can have a dramatic impact on the employer’s liability. In 1980, when it amended Title IV of ERISA through the Multiemployer Pension Plan Amendments Act (MPPAA), Congress gave the PBGC the authority to issue regulations regarding these critical interest rate assumptions. To date, the PBGC has not done so.

More specifically, in response to several recent court decisions (see “Payment Obligation Interest Rate Must Reflect Expected Investment Return, DC Circuit Holds”), the PBGC issued a proposed regulation to purportedly “clarify that the use of the 4044 (settlement interest rate) rates, either as a standalone assumption or in combination with financing interest assumptions, is the correct approach to selecting an interest rate assumption for determining the payment obligation in all circumstances.” Even more problematic, the proposed regulation states that “a plan actuary would have the authority to determine the payment obligation under the proposed regulation notwithstanding section 4213(a)(1) (including the waiver of the reasonableness and best actuarial estimate requirements).” The proposed regulation directly contradicts recent court interpretations of that statute, which was enacted as part of the MPPAA more than 44 years ago.

Moreover, the PBGC’s proposed rule ignored the key issue of whether selecting an interest rate that ignores the statutory requirements of reasonableness and best estimate satisfies other provisions of ERISA, such as Section 4221(a)(3)(B)(i). In this regard, and consistent with Loper LightSeveral District Courts of Appeal have already exercised their independent judgment to interpret the statutory language of “best estimate of anticipated plan experience” as referring to “unique features of the plan,” such as the composition of the plan’s investment assets and the expected rate of return on such assets. These recent Court of Appeals rulings thus directly contradict the PBGC’s proposed regulations. Any final regulations issued by the PBGC that follow the proposed regulations will inevitably be challenged and decided under the less stringent standard established under Loper Light.

Final thoughts

The exact impact Loper Light about the agency’s actions in general and the PBGC’s actions discussed above remain to be verified. Since Skidmore is still good law, a court that is sympathetic to the agency’s position may still decide to defer to that interpretation. The courts will no doubt be busy with a flood of lawsuits challenging administrative actions. The two current hot-button issues discussed above seem destined to be challenged and resolved by judges in post-Chevron world. Addressing these issues will have enormous implications for employers who face significant potential recall liability risks.