Articles | October 22, 2020

What is the Segal Blend?

The Segal Blend is an approach to valuing a multiemployer pension fund’s unfunded vested benefits for withdrawal liability purposes.

As the name suggests, the Segal Blend combines the liabilities calculated using two interest rate assumptions.

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What's covered

This article discusses:

  • The origins of the Segal Blend
  • The purpose of withdrawal liability
  • What’s blended in Segal Blend
  • The impact of the Segal Blend
  • Arbitration and litigation about the Segal Blend
  • The future for the Segal Blend

When did the Segal Blend come about?

In 1980, the Multiemployer Pension Plan Amendments Act (MPPAA) amended ERISA to address issues facing multiemployer plans.

MPPAA introduced the concept of withdrawal liability for multiemployer DB plans. The Segal Blend was developed after the passage of MPPAA to recognize the complexities of multiemployer plan dynamics when a contributing employer withdraws from the plan.

If an employer contributing to a multiemployer DB pension plan decides to withdraw, MPPAA requires that employer make additional payments to cover its share of the plan’s unfunded vested benefits.

Withdrawal liability payments provide protection for the plan participants by funding promised benefits. Withdrawal liability assessments reflect that the cost of and risks to the plan will be borne by the remaining employers and not the withdrawing employer.

MPPAA requires the Enrolled Actuary for the plan to calculate the unfunded vested liability for withdrawal liability purposes based on the actuary’s “best estimate” assumptions.

A withdrawing employer may challenge the assumptions selected by the Actuary, but the burden of proof falls to the employer to demonstrate the assumptions selected by the Actuary were unreasonable.

Disputes between a plan and an employer over a withdrawal liability determination generally must first go to arbitration.

As a leader in multiemployer retirement consulting for decades, we work with hundreds of multiemployer plans for which the Enrolled Actuary uses the Segal Blend.

Enrolled Actuaries who are not employed by Segal have also used some variation of the Segal Blend, for withdrawal liability purposes.

Encouraging financial integrity

The purpose of withdrawal liability is to protect the financial integrity of multiemployer plans, the plan’s participants and remaining employers. Withdrawal liability is generally assessed when an employer stops contributing to the plan, leaving the remaining employers with all ongoing risks and funding obligations.

Boards of trustees are required to assess and collect withdrawal liabilities. Enrolled Actuaries who use the Segal Blend do so because it reflects a final settlement between the withdrawing employer and the plan and their best estimate of future experience under the plan for this purpose.

What’s blended in the Segal Blend?

The Segal Blend involves two separate calculations of the plan’s vested benefit liability. The results of those calculations are then blended together to form the basis for determining an employer’s withdrawal liability.

The first liability calculation recognizes that the withdrawing employer is entering into a final settlement of its obligations and is transferring all ongoing risk to the remaining stakeholders. As a settlement, this liability calculation is performed using current market annuity rates. The Segal Blend uses rates published quarterly by the PBGC based on its survey of insurance company annuity purchase rates.

The second liability calculation uses the actuary’s assumption of future investment returns selected for purposes of determining the plan’s minimum funding requirement under ERISA. This approach is used to the extent that liabilities not currently fully funded under the first calculation, to recognize that the withdrawing employer is allowed to pay the unfunded portion of its liability over a period of up to 20 years.

A simple example follows.


Mechanics of the Segal Blend  


Vested benefits on funding basis (using assumptions for determining minimum funding of the plan)



Market value of assets



Vested benefits at market value (using PBGC assumptions)



Funded percentage on market basis



80% of vested benefits at market value

80% of $100 = $80


20% of vested benefits on a funding basis

20% of $90 = $18


Vested benefits for withdrawal liability


Market value of assets



Unfunded vested benefits for withdrawal liability



What’s the impact of the Segal Blend?

The rationale for using the Segal Blend is based on an understanding of how employer withdrawals affect multiemployer plans, and the Enrolled Actuary’s best estimate of future plan experience. Over the years, the Segal Blend has resulted in both lower and higher withdrawal liabilities compared to a withdrawal liability using the assumptions selected for minimum funding purposes.

Following the adoption of MPPAA in 1980, market (short-term) interest rates (and therefore PBGC rates) were much higher than the long-term rates that actuaries were generally selecting for minimum funding valuations. As a result of this relationship, the Segal Blend yielded lower withdrawal liability amounts.

More recently, historically low interest rates in the financial markets are lower than the return assumptions selected by actuaries for minimum funding purposes. The methodology has generally yielded higher withdrawal liability amounts than a calculation using only funding assumptions.

Arbitrators and courts have long accepted the Segal Blend

In 1983, only three years after MPPAA was enacted, an excerpt from the arbitrator’s decision in Sotheby’s v. Local 814 PF explains:

Segal has earned its reputation by devotion to its discipline as evidenced by the scholarship and training of its senior actuaries; its use of reviewing and steering committees; and, its requirement that its policies and procedures be uniformly implemented, subject to the unique experience of each fund, thereby avoiding any assertion that its methodology was “result-oriented” or, in other respects, arbitrary or unreasonable.

The making of actuarial assumptions, by law, requires an actuary, for withdrawal liability purposes, to use his best estimate of anticipated experience. The Arbitrator is satisfied that, in adopting the blended rate, Segal fulfilled its statutory mandate… Segal manifested an adherence to its obligation to constantly review the components and underlying data of its assumptions and to make modifications to them as required ...

In 1992, the U.S. Supreme Court decision in Concrete Pipe & Products of Cal., Inc. v. Construction Laborers Pension Trust for Southern Cal upheld the constitutionality of withdrawal liability and upheld the calculation of employer withdrawal liability by the Enrolled Actuary using the Segal Blend.

For more than 35 years from the inception of withdrawal liability, we are not aware of any arbitration or court decision that rejected use of the Segal Blend for withdrawal liability purposes.

Arbitration and Litigation Supporting the Segal Blend, 1983–2013  


Perkins Trucking Co., Inc. v. Local 807 Labor-Management Pension Fund


Foodtown Stores, Inc. v. United Food and Commercial Workers-Industry Pension Fund


Classic Coal Corp v. UMW 1950 and 1974 Pension Plans


Ells v. Construction Laborers Pension Trust of Southern California


Joy v. IAM


Bassett Construction Company v. Centennial State Carpenters Pension Trust Fund


East St. Louis Castings Co. v. M.I.R.A. Molders and Allied Workers Pension Fund


J.L. Denio v. Operating Engineers Pension Trust


Trustees of the Plumbers & Pipefitters Nat'l Pension Fund v. MAR-LEN, Inc.


Sotheby's Inc. v. Local 814, IBT Pension Fund*


Widoff’s Bakery v. Bakery & Confectionary National Pension Fund


Embassy Industries v. UAW 365


Block Communications, Inc. and Buckeye Telesystems, Inc. v. Central States

* Rejected strict interpretation of Concrete Pipe


Recent rulings on the Segal Blend

Unanimous judicial support for the Segal Blend changed in 2018 when a district court rejected use of the Segal Blend in New York Times Co. v. the Newspaper and Mail Deliverers’-Publishers’ Pension Fund. The case concerned the New York Times’ withdrawal from a multiemployer pension fund, which had been upheld by an arbitrator. The plan appealed, but the case was settled before the appellate court reached a decision.

Yet shortly after that decision was handed down, another district court upheld use of the Segal Blend. That case was Manhattan Ford Lincoln, Inc. v. UAW Local 259 Pension Fund. The decision noted:

Minimum funding and withdrawal liability are different concepts under ERISA with different, although related, policy concerns. … Funding is an ongoing process, subject to adjustment for an employer that is remaining in the plan. … Withdrawal liability, however, is calculated once, as of the time of withdrawal. Should the unexpected occur after that employer’s departure, the burden may unfairly fall on other plan employers… The risk-transfer and settlement models of withdrawal liability recognize a more complicated reality than the one embodied in minimum funding levels.

In May 2020, another district court ruled, in Sofco Erectors Inc. v. Trustees of the Ohio Operating Engineers Pension Fund, that “Although not unlawful to use different rates for funding and withdrawal liability pursuant to Concrete Pipe, there are legal grounds to find that the Fund's use of the Segal Blend in this instance was erroneous.” However, the court did not clarify the legal grounds that led to its conclusion to overturn the arbitration award supporting the Blend.

A few days later, a district court ruled in United Mine Workers of America 1974 Pension Plan v. Energy West Mining Company. Although the plan’s actuary did not use the Segal Blend, the court refuted the logic in the New York Times decision, noting, “nothing in ERISA’s text or in Concrete Pipe requires that the minimum-funding rate and withdrawal-liability discount rate be the same.”

In addition, in July 2020, an arbitrator upheld use of the Segal Blend. In Interboro Fuel Corp v. Local 553 Pension Fund, the arbitrator stated:

Just because in one isolated case, which was either wrongly decided, as [the Fund] urges, or was fact specific to the parties, that is, the New York Times case, does not mean every withdrawing employer may cite that case as a basis to overturn the Segal methodology... All agree that there is no holding that renders [the Segal Blend] invalid or patently unreasonable. Even the New York Times case declared that to be so.

What’s the future for the Segal Blend?

The New York Times case was under appeal when it was settled. Use of the Segal Blend was only one of several issues and the settlement terms have not been publicized. The Sofco case that is being appealed in 2020 will likely take some time to reach conclusion.

Regardless of the outcome, we anticipate the Segal Blend will continue to have widespread support among multiemployer plan Enrolled Actuaries, arbitrators and courts.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.

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