By Israel Goldowitz
With the economy and the securities markets roiled by trade wars, many businesses are no doubt considering the possibility of a recession. We might also expect a major increase in bankruptcy filings. That may require consideration of how ERISA and the Bankruptcy Code interact.
Judge Craig Goldblatt of the Delaware Bankruptcy Court has been conducting a master class in the Yellow Corporation Chapter 11 case. His decisions illustrate how ERISA and bankruptcy law may conflict but more often can be harmonized.
Yellow, once a leading less-than-truckload carrier, filed for bankruptcy in July 2023 and sold substantially all its assets for nearly $3 billion. Sixteen multiemployer pension plans filed more than $6 billion in claims for withdrawal liability. The withdrawal liability claims are the “fulcrum” claims, as investors could be in the money if those claims are reduced. In any event, their resolution is critical to finalizing a consensual plan of liquidation.
The Court’s Rulings
Proper Forum
In March 2024, Judge Goldblatt held that he, and not a statutory arbitrator, would decide the claims dispute. Arbitration agreements are generally enforceable. As Judge Goldblatt explained, in bankruptcy all interested parties may participate, but there would no loss of efficiency, and there would be no prejudice, as legal conclusions of a withdrawal liability arbitrator or a bankruptcy judge are fully reviewable by a U.S. district court.
This result was to be expected, in my view, given the exigencies of bankruptcy practice. There are often external deadlines, and asset values often decline as time passes. The judge therefore has a vital role in moving the case to closure. In addition, Congress has given bankruptcy courts broad authority to consider everything from domestic relations law to oil and gas law, as the Bankruptcy Code’s legislative history indicates. The Supreme Court has held that when Congress sets up a special tribunal (such as the NLRB), that tribunal should determine the validity and amount of claims against the debtor. But such concerns are often mooted by settlements, either standalone or as part of a confirmed plan.
Employer’s Share of Unfunded Vested Benefits
Withdrawal liability represents the withdrawn employer’s share of the plan’s unfunded vested benefits. For instance, if the value of vested benefits is $5 billion and the value of plan assets is $4 billion, and the employer was a five-percent contributor, the employer’s share of unfunded vested benefits would be $50 million ($5 billion – $4 billion x .05).
Inclusion of SFA Award as a Plan Asset
In November 2024, Judge Goldblatt addressed whether an award of special financial assistance (SFA) under the American Rescue Plan Act of 2021 (ARPA) is treated as a plan asset for this purpose. ARPA established a taxpayer rescue of deeply troubled multiemployer plans, through SFA grants administered by the Pension Benefit Guaranty Corporation (PBGC). Congress authorized PBGC to set conditions on SFA payments, including conditions relating to withdrawal liability. In a July 2022 final rule setting conditions on SFA awards, PBGC required plans to treat the award as an asset only on a phased-in basis over the expected life of the award. Otherwise, employers could take unfair advantage of the system, withdrawing soon after the award was made.
In its June 2024 decision in Loper Bright, the Supreme Court overruled the Chevron doctrine, under which courts would defer to an agency’s “permissible” statutory construction where Congress has not directly spoken. The Court confirmed, however, that Congress may “expressly delegate” authority to an agency to “fill up the details.” After considering Loper Bright, Judge Goldblatt upheld this aspect of the rule as within PBGC’s delegated authority and not arbitrary and capricious.
Discount Rate for Vested Benefits
In February 2025, Judge Goldblatt addressed the interest factors used to bring the expected payments of vested benefits to present value. As many of our readers know, in valuing benefits, a multiemployer plan actuary’s mortality and interest assumptions must be “reasonable” “in the aggregate” and represent her “best estimate of anticipated experience” under the plan.
Until recently, courts had accepted a range of interest rates, including a blend of the plan’s funding rate — often six to seven percent — and the “PBGC rate” — which was as low as two percent in recent years. (PBGC interest assumptions are designed to replicate the price of a group annuity using a specified mortality table.) Use of a blended rate instead of the funding rate can increase the plan’s liabilities significantly, as present value is inversely related to the discount rate and a change of one hundred basis points can swing liabilities by ten percent or more.
Starting in 2021, three courts of appeals held that if the funding rate represents the actuary’s “best estimate” of anticipated experience for that purpose, the withdrawal liability rate should at least be similar. This, despite policy arguments that an employer withdrawal is like a termination and that benefits should be valued more conservatively.
In response, in October 2022, PBGC issued a proposed rule that would validate the use of any interest assumption between the PBGC rate and the funding rate, including a blended rate. The proposed rule has been controversial, and it is not clear that PBGC would be willing to eliminate ten other rules to finalize this rule, under the Unleashing Prosperity Through Deregulation executive order.
For plans receiving SFA, under the July 2022 final rule, the actuary must use the PBGC rate. The majority of the plans in Yellow had been awarded SFA. Five had not, however, and Judge Goldblatt held that they could not use a blended rate to determine the value of vested benefits. He explained that a plan’s “anticipated experience” refers to expected earnings on plan investments and that a blended rate with little grounding in the plan’s actual investments is impermissible.
Whether one agrees or disagrees with this conclusion, the underlying logic seems mainstream. Bankruptcy courts are to apply the non-bankruptcy law under the Supreme Court’s decisions in Raleigh v. Illinois Department of Revenue (2000) and Butner v. United States (1979) unless the Bankruptcy Code provides otherwise. And the only courts of appeals to address the issue have ruled against a withdrawal liability discount rate that markedly departs from the funding rate. (We have written on these issues for bankruptcy and insolvency journals, e.g., Employee Benefits in Bankruptcy: Update on Key Issues, 2023 AIRA Journal.).
Employer’s Effective Withdrawal Liability
Though withdrawal liability is stated as a lump sum, it is payable in installments that approximate the withdrawn employer’s contributions, using the valuation interest rate as the amortization rate. If the amortization schedule exceeds 20 years, all payments beyond that point are forgiven, under the ”20-year cap.”
In his November 2024 opinion, Judge Goldblatt held that the cap applies even in the event of default, which permits a plan to accelerate the installment payments. Judge Goldblatt reasoned that, under ERISA, the cap is part of the definition of “withdrawal liability.”
On April 7, 2025, Judge Goldblatt issued a 70-page Memorandum Opinion Setting Forth Preliminary Observations, to guide the parties’ settlement discussions. There, he explained that, under ERISA and plan rules, a plan may declare a default and accelerate payments when the employer misses a payment and fails to cure or when the plan deems itself insecure due to the employer’s financial condition.
Judge Goldblatt noted the historical prohibition against ipso facto clauses, those that treat bankruptcy as a default. In the context of claims allowance, he noted, whether that prohibition applies is beside the point, as all installment payments are accelerated and must be brought to present value as of the petition date. That also appears true, he added, under an ERISA relief rule that allocates recovery among multiemployer plans based on the present value of their withdrawal liability claims. The only question, then, is what discount rate to use.
The Bankruptcy Code’s legislative history indicates that, for contract claims, the discount rate is the contract rate of interest. By analogy, Judge Goldblatt reasoned, for statutory claims the discount rate would be the statutory rate, here the amortization rate under ERISA. He buttressed that conclusion by pointing to bankruptcy courts’ traditional power to follow the economic substance rather than the form, in this case that time value represents unmatured interest that is not allowed as part of a bankruptcy claim.
As noted, Judge Goldblatt’s opinion should provide the parties with guidance in their settlement discussions. More broadly, Judge Goldblatt’s opinions illustrate that ERISA and bankruptcy law can often be harmonized, though in the end bankruptcy law governs the bankruptcy claims process.
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WLG’s Washington, D.C. Office is often involved in the employee benefits aspects of bankruptcy and insolvency cases. We represent employers on PBGC and multiemployer plan issues and employers and executives on deferred compensation issues, among other things.
Our Washington, D.C. lawyers have been involved in some of the largest bankruptcies, including American Airlines, Delphi, Dewey LeBoeuf, and Sears. We are available to assist debtors, creditors’ committees, and other interested parties as Employee Benefits counsel in bankruptcy and insolvency cases. If you have questions about such issues, please contact Israel Goldowitz, Stephen Wilkes, or the WLG attorney with whom you work.
