Illinois Court Reshapes Pension Withdrawal Liability Calculations

If you’ve ever tried to cancel a gym membership and discovered you needed a notary, a witness, and a small
offering to the gods… congratulations: you already understand the emotional vibe of “withdrawal liability.”
Except instead of treadmills, we’re talking about multiemployer pension plansand instead of a $49 “processing fee,”
the bill can land in the millions.

A major decision out of an Illinois-based federal courtthe U.S. Court of Appeals for the Seventh Circuit,
reviewing cases from the Northern District of Illinoisjust changed a key piece of how certain withdrawal liability
installment payments are calculated. The ruling focuses on a deceptively simple question: when a pension fund looks
back to find an employer’s “highest contribution rate” for setting annual withdrawal liability payments, can it count
post-2014 contribution rate increases that were tied to a rehabilitation plan? The Seventh Circuit’s answer, in plain
English: usually not.

Here’s what happened, why it matters, and what employers and pension plan fiduciaries should take awaywithout
forcing you to get a PhD in ERISA to follow along.

Withdrawal Liability 101: The “Breakup Fee” of Multiemployer Pensions

Multiemployer pension plans are collectively bargained defined benefit plans supported by contributions from two or
more unrelated employers (often in the same industry). They’re designed to let workers keep pension credit when they
move between union employers. The tradeoff is that the plan’s long-term health depends on employers continuing to
contribute over time.

When an employer exits (through a “complete withdrawal,” and sometimes through a “partial withdrawal”), federal law
generally requires the employer to pay its share of the plan’s unfunded vested benefitscommonly called
withdrawal liability. The basic policy goal is to prevent a “stampede for the exit doors,” where
healthy employers leave first and the plan spirals downward as the remaining employers shoulder increasing costs.

Withdrawal liability disputes also come with their own special rules. Payment is typically demanded quickly, and
employers often must “pay now, dispute later,” with arbitration being the required forum for many challenges. In
other words, it’s not just mathit’s time-sensitive math with legal consequences.

The Two Parts of the Bill: Total Liability vs. Annual Payment Amount

It helps to split the concept into two related (but not identical) pieces:

• Total withdrawal liability: the employer’s allocated share of the plan’s unfunded vested benefits,
  calculated using statutory allocation methods and actuarial assumptions.
• The payment schedule: how much the employer must pay each year (often quarterly installments),
  including limits like the well-known 20-year cap that can, in some cases, prevent the employer
  from paying the full assessed amount through installments.

The Illinois decision that’s making waves primarily targets the payment-schedule side of the equationespecially how
the “maximum annual payment” is set. And that’s a big deal, because if you lower annual payments and then apply a
20-year cap, the total collected can change dramatically in real-world scenarios.

Where the “Highest Contribution Rate” Comes In

Under the withdrawal liability statute, one common way to set the annual payment starts with the employer’s
historical “contribution base units” (CBUs)hours worked, tons produced, or another negotiated unitand then
multiplies those by the employer’s highest contribution rate during a lookback period.

Translation: the law uses a rough proxy for what the employer was contributing before withdrawal, then sets annual
payments in that neighborhoodso withdrawal liability feels like paying “your share” over time rather than writing a
single massive check. (Yes, it can still feel massive. Just… massive in installments.)

Why Contribution Rates Often Rise Right Before Employers Leave

Here’s the twist that caused Congressand now the Seventh Circuitto step in.

Multiemployer plans that become underfunded can be certified as “endangered,” “critical,” or “critical and declining.”
Once a plan enters critical status, it must adopt a rehabilitation plan designed to improve funding.
That usually means some combination of reduced future benefit accruals and increased contribution requirements.

So just when a plan is strugglingand trying to climb outcontribution rates often rise. If those increases are then
used to set the “highest contribution rate” for withdrawal liability payments, employers can face a higher annual
payment precisely because they helped the plan recover. That’s a policy problem: it can punish the very behavior the
system needs (continued contributions during tough years).

Congress Tried to Fix the Perverse IncentiveEnter MPRA 2014

In response to several unintended consequences created by earlier reforms, Congress passed the
Multiemployer Pension Reform Act of 2014 (MPRA). One MPRA idea, simplified: if a plan is in a funding
improvement or rehabilitation plan and contribution rates increase to satisfy that plan’s funding requirements, those
increases generally shouldn’t inflate the withdrawal liability payment schedule.

The statute does this through a “disregard” rule. In certain situations, post-2014 contribution rate increases that
are required or made to meet a rehabilitation plan must be disregarded when determining the “highest contribution
rate” used in withdrawal liability installment calculationsunless a narrow exception applies.

The Two Big Exceptions (and Why They Matter)

While the legal language can get dense fast, the exceptions are conceptually straightforward:

1. More work equals more contributions. If contribution increases are due to increased levels of work,
   employment, or compensation periods (think: more hours, more covered work), they may be treated differently.
2. Benefit increases paid for with “extra” contributions (with a specific kind of actuarial certification).
   If additional contributions are used to provide certain benefit increases that are permitted under the statuteand
   the required actuarial certification is obtainedthen those contributions can fall into the exception bucket.

The Illinois litigation largely centered on the second exception and what “permitted” really means.

The Illinois Ruling: Seventh Circuit Says “Disregard” Means Disregard

In a set of consolidated appeals decided on April 24, 2025, the Seventh Circuit addressed a dispute involving the
Central States, Southeast and Southwest Areas Pension Fund and two withdrawing employers, Event Media Inc. (doing
business as Complete Crewing) and Pack Expo Services, LLC.

The background matters:

• The fund’s actuary certified the plan was in critical status in 2008, triggering a rehabilitation plan.
• In 2019, the plan was certified as critical and declining, with a projection of insolvency by 2025.
• The employers withdrew in 2019, triggering withdrawal liability obligations payable in installments.
• The employers’ contribution rate was $328 in 2014, increasing each year until it reached
  $424 in 2019.

The fund used the higher 2019 rate because it was the highest rate in the 10-year lookback window.
The employers argued MPRA’s disregard rule required the fund to ignore those post-2014 increases because they were
tied to the rehabilitation plan, meaning the 2014 rate should be used for setting installment payments.

The Core Holding

The Seventh Circuit affirmed the Northern District of Illinois and concluded the fund should have used the
2014 rate for installment payment calculations. The court treated the statute’s structure as a strong
presumption: post-2014 contribution rate increases are deemed “required” to meet a rehabilitation plan unless one of
the narrow exceptions appliesand the exceptions didn’t apply here.

The fund tried to fit the case into the “benefit increase” exception by arguing that contribution increases were
tied to benefit accrual mechanics. But the court emphasized that the statutory exception is not a vibe; it’s a
checklist. It requires a specific type of permissionincluding the presence of an amendment and actuarial certification
under the relevant provision. In this case, the parties agreed there was no qualifying plan amendment and no
certification of the kind the statute requires. So the exception didn’t open the door.

The decision also rejected the idea that “permitted” means “not prohibited.” The court’s reasoning was essentially:
if Congress wanted “not prohibited,” it knew how to say that; it used “permitted,” which calls for affirmative statutory
conditions to be satisfied.

Why This “Installment Math” Ruling Has Outsized Real-World Impact

You might wonder: if this is about the annual payment amount, isn’t that just timinglike paying the same total
liability over longer? Not necessarily. Payment mechanics can change outcomes.

1) The 20-Year Cap Can Turn a Payment Change into a Total-Dollar Change

Many employers pay withdrawal liability in installments, and the statute caps installment payments at 20 years in
many situations. If annual payments go down but the cap stays, an employer might never fully amortize the assessed
liability through installments. That means changing the “highest contribution rate” can affect not only cash flow,
but the total dollars collected.

That’s one reason the decision matters to plan fiduciaries: a lower annual payment may reduce near-term collections,
and in some scenarios it can reduce total recoveries if the cap binds.

2) The Ruling Strengthens a Predictable “Rule of the Road”

Employers considering withdrawal often try to model exposure. Plans try to protect funding. Both sides benefit from
rules that aren’t easily “reinterpreted” after the fact.

The Seventh Circuit framed the question as statutory interpretation, not actuarial discretion, and treated the MPRA
disregard rule as a deliberate policy fix. That signals that courts may be less receptive to creative readings that
swallow the disregard rule whole.

3) It Adds Pressure to Keep Documentation Tight

Whether a contribution rate increase is “required” by a rehabilitation plan can become a fact-heavy question. Plans,
unions, employers, and advisors should expect greater scrutiny of:

• rehabilitation plan schedules and updates,
• collective bargaining documents and contribution rate histories,
• the basis for any claimed “benefit increase” exception, and
• whether the required actuarial certification exists and matches the statute’s requirements.

Practical Takeaways for Employers

This is not legal advice, but it is reality advice: withdrawal liability is one of those issues where “we’ll deal with
it later” often becomes “why is this letter asking for seven figures within 60 days?”

Do These Before You’re Staring at a Demand Letter

• Map your contribution rate timeline. Identify pre-2015 rates, post-2014 increases, and what drove each change.
  Was it a rehabilitation plan schedule, bargaining changes, increased work levels, or something else?
• Understand your CBUs. Annual payment calculations often rely on contribution base units, and CBU records can be messy.
  If your “hours worked” reporting isn’t clean, your math won’t be either.
• Watch the plan’s status certifications. Endangered/critical/critical-and-declining status triggers special rules.
  Those labels aren’t just plan triviathey’re legal switches.
• Budget for arbitration when appropriate. Many disputes must be arbitrated, and deadlines matter. Missing them can
  turn a disputable assessment into an expensive fait accompli.

Practical Takeaways for Plans, Trustees, and Fiduciaries

Plans and fiduciaries are balancing a hard mission: protect promised benefits, keep the plan funded, and apply the law
correctly while employers come and go. The Seventh Circuit decision is a reminder that “correctly” includes honoring
MPRA’s carve-outs even if the financial impact is unpleasant.

What Plans Should Revisit Now

• Assessment procedures. Ensure the contribution rate used for installment payments reflects the MPRA disregard rule
  where applicable, especially for post-2014 rehabilitation-plan-driven increases.
• How you document benefit changes. If a plan wants to rely on the benefit-increase exception, it needs the right
  structureamendments and actuarial certifications that match statutory requirements, not just internal assumptions.
• Communications to contributing employers. Employers are more likely to stay in a plan when they can model risk.
  Clear explanations reduce suspicion, and suspicion is fuel for litigation.

Zooming Out: Courts Are Scrutinizing Withdrawal Liability Inputs Nationwide

The Illinois decision didn’t happen in a vacuum. Across the country, litigation has increasingly focused on the inputs
that drive withdrawal liability resultsinterest rates, actuarial assumptions, plan amendments, and how new rules
interact with old plan designs.

Notably, the U.S. Supreme Court has agreed to review a separate withdrawal liability question about the timing of
actuarial assumptionsspecifically, whether a plan can adopt a new interest rate assumption after the end of the
measurement year if it is based on information available “as of” that year-end. That case is different from the
Seventh Circuit’s “contribution rate” dispute, but it reflects the same big theme: the numbers matter, and so do the
rules about when and how those numbers are chosen.

Meanwhile, federal regulators (including the PBGC) have also worked on rules and guidance affecting withdrawal
liability calculations and related procedures. The broader environment is one where both courts and regulators are
trying to reduce gamesmanship and improve predictabilitywhile still keeping plans afloat.

Bottom Line: A “Simple” Statutory Word Can Move Real Money

The Seventh Circuit’s message is clear: MPRA’s disregard rule was designed to prevent rehabilitation-plan-driven
contribution increases from automatically inflating withdrawal liability installment payments. If an employer’s
post-2014 contribution rate increases are deemed required to meet a rehabilitation planand the plan can’t satisfy a
narrow exception with the required statutory conditionsthose increases should not be used to set the employer’s
“highest contribution rate” for installment calculations.

Employers should see the ruling as a meaningful tool when evaluating assessments tied to post-2014 rate increases in
rehabilitation-plan contexts. Plans should see it as a compliance flashing lightand a reminder to align assessment
practices with MPRA’s structure, not just with what feels financially convenient.

Either way, one thing remains true: withdrawal liability is still complicated, still high-stakes, and still the kind
of math that can make smart people stare at spreadsheets like they’re haunted. The difference now is that, in the
Seventh Circuit, at least one part of the equation got a lot less flexible.

Real-World Experience: Living Through “Withdrawal Liability Math” in Illinois

The first time you hear “withdrawal liability,” it sounds like something your doctor warns you about after you quit
caffeine. The second time you hear it, it’s because someone forwarded you a demand letter with more zeros than your
company’s holiday party budget. And by the third time, you’ve learned the unofficial rule of multiemployer plans:
the math is never just mathit’s also timing, paperwork, and the world’s most intense scavenger hunt for old rate sheets.

In the Illinois disputes that led to the Seventh Circuit’s ruling, what stands out isn’t only the legal reasoning.
It’s how familiar the underlying scenario feels to anyone who has managed labor relationships, benefits compliance,
or finance at a company that contributes to a multiemployer plan. Contribution rates rise year after year. Everyone
understands why: the plan is in critical status, it needs a rehabilitation plan, and the plan’s survival depends on
contributions that match reality. Employers keep paying because they have tocontractually, strategically, or both.

But then business conditions shift. A contract ends. A line of work moves. A location closes. Suddenly the question
becomes: “If we withdraw, what do we owe?” That’s when the phrase “highest contribution rate in the last ten years”
stops being a statutory detail and starts feeling like a trapdoor. You look back at the rate history and realize the
highest rate is almost always the most recent onebecause the plan has been pushing rates upward to stabilize funding.
On paper, that can mean your annual payment is calculated at the worst possible moment: right after years of planned
increases that were meant to help the plan, not punish the contributor.

The experience tends to unfold the same way. You pull together a cross-functional team: finance wants an estimate by
Friday, HR wants to know what happens to employees, legal wants every agreement since the dawn of time, and your
outside advisor calmly asks for “all contribution base unit reports for the last decade.” That’s when someone mutters,
“We didn’t even keep the same payroll system for the last decade.”

What the Seventh Circuit decision changesat least emotionallyis that it rewards careful questions. Instead of
accepting “the highest rate is the highest rate,” teams can ask: “Were these post-2014 increases required to meet a
rehabilitation plan?” “Do any statutory exceptions apply?” “Is there an actual plan amendment and actuarial
certification supporting a benefit-increase exception, or are we just assuming increased contributions equal increased
benefits?” That’s not loophole hunting; it’s exactly what Congress intended when it tried to prevent rehabilitation
plan mechanics from creating perverse incentives.

In practice, the biggest lesson is recordkeeping. The companies that handle these issues best aren’t the ones with the
fanciest spreadsheetsthey’re the ones who can prove why a rate changed, when it changed, and what document required
it. If your rate increases were driven by rehabilitation plan schedules, keep those schedules. If bargaining created a
one-off increase because the workforce expanded, keep the bargaining notes. And if a plan later claims an exception
applies because contributions funded a benefit increase, someone should be able to produce the amendment and the
certification, not a shrug and a confident tone.

The funny partif you enjoy extremely niche humoris that “Illinois court reshapes calculations” sounds like a
dramatic headline, but the lived experience is quiet and practical: fewer assumptions, more documentation, and a
clearer rule for which rate belongs in the formula. It won’t make withdrawal liability easy. But it can make it more
predictable, and in this corner of the benefits world, predictability is basically the luxury upgrade.