On September 16, 2025, the United States Court of Appeals for the Third Circuit in In re Yellow Corp., No. 25-1421: (i) upheld regulations issued by the Pension Benefit Guaranty Corporation (“PBGC”) that partially exclude Special Financial Assistance (“SFA”) received by multiemployer pension plans from the calculation of withdrawal liability; and (ii) held that employers can contract with plans to pay more withdrawal liability than required under ERISA, without approval from PBGC. The Third Circuit’s decision resolves critical questions regarding the treatment of tens of billions of dollars in SFA, and provides both employers and plans with some flexibility to deviate from ERISA’s default rules regarding withdrawal liability. Groom Law Group represented a group of multiemployer pension plans in the Third Circuit appeal and in the underlying bankruptcy proceedings before the United States Bankruptcy Court for the District of Delaware.
Background
In the American Rescue Plan Act of 2021 (“ARPA”), Congress authorized SFA for eligible underfunded multiemployer plans to ensure that those plans would have sufficient funds to pay all benefits due through 2051. Congress directed PBGC to review plans’ applications for SFA and authorized PBGC to issue regulations that would impose “reasonable conditions” on how plans receiving SFA would account for and utilize those funds. The regulations issued by PBGC included a “phase-in” provision that prohibited plans from immediately counting all SFA for purposes of calculating withdrawal liability—which is a withdrawing employer’s share of the plan’s underfunding. PBGC was concerned that if SFA immediately counted for withdrawal liability purposes, it would, in effect, subsidize employer withdrawals and could destabilize the multiemployer system.
Yellow Corporation, a large trucking company that contributed to many plans, filed bankruptcy in 2023 and withdrew from those plans. Yellow raised a number of challenges to plans’ withdrawal liability assessments in the United States Bankruptcy Court for the District of Delaware, two of which made it to the Third Circuit. First, Yellow argued that PBGC’s “phase-in” regulation (and a related regulation about how to treat SFA not yet received by plans) was outside the scope of PBGC’s statutory authority and arbitrary and capricious. Second, Yellow argued that agreements it struck with two plans in 2013 to exclude reduced contribution rates from any future withdrawal liability assessment were unenforceable because neither plan obtained PBGC approval.
The Bankruptcy Court rejected both challenges and Yellow appealed to the Third Circuit, which affirmed.
The Third Circuit’s Opinion
The Court held that PBGC’s SFA regulations were valid exercises of PBGC’s authority. Specifically, the Court held that these regulations were authorized under ARPA as “reasonable conditions” on the pension plans that received SFA funds and under ERISA pursuant to PBGC’s pre-existing regulatory authority, including “the authority to define ‘plans assets . . . by such regulations as’ it ‘may prescribe.’” The Court also emphasized that one of ERISA’s purposes—and the reason Congress created PBGC and provided it with wide regulatory authority in the first instance—is to protect retirees’ pension benefits. Consistent with that purpose, the Court explained that, because employers do not have any legal claim to SFA funds, the regulations merely preserve the status quo by preventing those funds from being redirected to employers. The Court also went on to hold that the major questions doctrine—which limits regulatory authority over issues of vast economic and political significance without express permission from Congress—does not apply with respect to PBGC’s SFA regulations.
The Court also held that PBGC’s SFA regulations were not arbitrary or capricious. The Court highlighted the “comprehensive” notice-and-comment process underlying these regulations, which raised concerns regarding incentivizing employer withdrawals if SFA reduced employers’ withdrawal liability.
With respect to Yellow’s challenges to its 2013 agreements, the Court held Yellow to these pre-bankruptcy bargains. When Yellow reached those agreements with the two plans, Yellow was in financial distress and negotiated reduced contribution rates; those reduced contribution rates afforded Yellow the flexibility it needed to reenter those plans, from which it had previously withdrawn. As a condition of accepting Yellow’s reduced contribution rates, the two plans required that the contribution rate reductions would have no impact on Yellow’s future withdrawal liability—otherwise, the reduced contribution rates would have reduced Yellow’s withdrawal liability over time. Yellow agreed, and its agreements with the two plans required that Yellow’s future withdrawal liability be calculated based on the status quo prior to the agreements (i.e., without respect to the reduced contribution rates). Yellow subsequently challenged those agreements in bankruptcy because the two plans had not obtained PBGC approval, which is required when a pension plan changes the method by which it calculates withdrawal liability to a method other than those specifically provided by statute. But the Court held that PBGC approval was not required because the changes here were not a “‘completely different method’ for [the plans] as a whole.” The Court further held that employers may waive limitations on their withdrawal liability without PBGC approval.
Key Takeaways
The Third Circuit’s ruling has significant consequences for both employers and pension plans, resolving critical questions concerning the intersection of withdrawal liability calculations and pension plans’ receipt of SFA funds. PBGC has issued tens of billions of dollars of SFA funds to date, and pension plans can continue to apply for SFA through December 31, 2025. This decision provides employers and pension plans with additional clarity and certainty regarding how those SFA funds will be accounted for in calculating employers’ withdrawal liability.
This decision also protects the ability of employers and pension plans to craft appropriate arm’s length solutions to unique circumstances that may arise concerning employers’ withdrawal liability calculations. Employers and pension plans should carefully analyze any agreements concerning withdrawal liability, which could have substantial consequences.
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