Legal Docket: Counting (and counting) the cost

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MARY REICHARD, HOST: It’s The World and Everything in It for February 16th, 2026. So glad you’re listening. Good morning! I’m Mary Reichard.

NICK EICHER, HOST: And I’m Nick Eicher. Time now for Legal Docket.

Today, we’ll tell you about two disputes before the US Supreme Court. Both of them a little technical, but both boiling down to a simple question about pensions and investment funds:

Namely, when the numbers change, who has to pay?

And when retirement promises or shareholder rights are on the line, that answer matters—whether you manage the money yourself or you don’t.

We’ll begin with pensions and some background on how some of them work.

When several companies join together in a shared retirement plan, they promise benefits to workers that may take decades to pay out.

REICHARD: If one company decides to leave that plan, it doesn’t just get to walk away. It has to pay its share of any shortfall—that is to say, money promised but not fully funded.

In this case, the departing company believed the bill for the shortfall was just shy of $2 million.

But weeks later, it got worse, like more than three times worse. The pension fund adjusted one of its financial assumptions and the bill jumped to $6 million-dollars plus.

The Supreme Court now has to decide whether that later adjustment was fair accounting—or whether the number was supposed to be locked in at year’s end.

EICHER: The dispute, as so many of these do, turns on two small words in federal pension law: “as of.”

The law says the exit fee must be calculated “as of” the last day of the plan year—in this case, December 31st.

M&K Employee Solutions argues that means you use the assumptions in place on that day—no hindsight, no future revisions.

The pension fund says it can consider information that was already known, even if the formal adjustment didn’t come until a few weeks later.

REICHARD: And here, the change of a single percentage point in the assumed rate of return—from 7.5 percent to 6.5—compounded over decades made all the difference.

Justice Clarence Thomas zeroed in on that point with the lawyer for M&K, Michael Kenneally.

THOMAS: So is the discount rate the major factor in the … cost differential?

KENNEALLY: Yes, it is, Your Honor, and that’s because of the compounding of interest over time, and it has an exponential effect on the amount.

If the number is frozen at year-end, companies get certainty. If the number can be updated, pension plans get accuracy. The justices tested just how rigid the rule would be.

EICHER: Chief Justice John Roberts tested M&K’s bright line rule with a hypothetical, that if companies have given all of their information on December 31st:

ROBERTS: — and on January 1st, one of the companies mails in and saying, you know, we forgot to count all of our accountants … 55 of them. You should add them to the numbers we sent you. Can the pension fund do that?

KENNEALLY: Yes, Your Honor. 

That exchange exposed the problem: If some new information after December 31st can be considered, where do you draw the line on all new information?

M&K wanted to draw it between objective facts and professional judgment, not mere math.

KENNEALLY: And so there are objective facts out in the world, like the amount of plan assets or the number of retirees. Those are all just facts out in the world that can’t be changed because of what someone thinks about them. But actuarial assumptions are fundamentally unlike that. They are judgments … about 10 to 40 years of future experience …

REICHARD: In other words: counting accountants is one thing. Rewriting decades of future assumptions is another.

Chief Justice Roberts pushed further.

What about real-world shocks? Events so significant they upend financial forecasts overnight?

ROBERTS: … there must be situations where it is a more dramatic change, whether it’s, I don't know, the start of World War II, Pearl Harbor. I—it seems to me that there ought to be some basis where there assumptions that were made are fairly—are dramatically differed and the liability is placed on the company as of the date—time they depart, right?

KENNEALLY: No, as of the date of the end of the prior year. Right. Congress chose not to make it the date of the withdrawal and I think they did that so that every withdrawing employer who withdraws in the same year will be charged the same amount of withdrawal liability.

That question gets to the heart of the dispute. Should the law lock in assumptions for predictability—or allow adjustments when reality shifts?

EICHER: Now the person making those predictions is called an actuary—essentially the risk forecaster for the pension plan. An actuary estimates how much money the fund will need decades into the future, weighing life expectancy, expected returns on investments, and a host of other assumptions.

Justice Ketanji Brown Jackson pressed that role directly:

JACKSON: COVID’s a major change. Let's say it happens in January or February of the year after and it's going to make a difference, thinks the actuary, in terms of this plan's performance. I think under your rule, they—they would have to ignore that, right, because it didn't happen during the plan year? And I guess how is that consistent with Congress’s statement that the actuary is supposed to be making their best judgment?

REICHARD: Her question went to the core requirement of the statute: If Congress tells an actuary to use his “best judgment,” can the law really force that professional to ignore a known economic shock simply because it happened in January instead of December?

Justice Brett Kavanaugh took it a step further—focusing on the statute’s own language.

KAVANAUGH: … the companies would prohibit the plan’s actuary from considering those events when calculating withdrawal liability, that that’s in tension with the word “reasonable,” in tension with the statutory word “best estimate,” and … under your view, the actuary would be reduced to admitting that its assumptions were wrong...
You want to respond to that?

KENNEALLY: Sure, Your Honor. I think that that’s an unrealistic view of how interest rate assumptions in this context work because we’re talking about retirement payments for two to four decades into the future. Even a shock such as the 2008 financial crisis here, which I think, if any market event would change actuarial assumptions, that would...

Meaning, if the actuary has to use a “reasonable” and “best estimate,” can the law really require it to pretend known events did not happen?

EICHER: Multi-employer pension plans cover millions of workers. Companies that leave want certainty about what they owe. But workers depend on accurate funding to protect their benefits. The Supreme Court has to decide whether “as of” means frozen in time—or flexible enough to reflect reality.

REICHARD: Several justices appeared skeptical that Congress meant to freeze assumptions in place when markets can shift dramatically. The case is officially listed as M&K Employee Solutions vs Trustees of the IAM National Pension Fund.

EICHER: All right, so the first case was about who pays when the math changes. The second one is about who gets to sue when the management changes. 

At its core, it’s a question of enforcement power: When an investment fund breaks the rules, can shareholders take them to court themselves—or is that a job only the government can do?

REICHARD: Saba Capital Management is what’s known as an activist investor. It buys large stakes in investment funds it thinks are underperforming, and then pushes for changes.

One of those funds is FS Credit Opportunities Corporation, known as FSCO.

When Saba built up a significant stake, FSCO triggered what are sometimes called “poison pill” rules—bylaws designed to limit the voting power of any single large shareholder. In other words: to keep Saba from taking over.

EICHER: So Saba sued under the federal Investment Company Act of 1940, arguing those poison pill provisions violate the law, which requires equal voting rights. 

But the Supreme Court is not deciding whether poison pills are good or bad. Instead, it's asking a more foundational question: Does federal law allow private investors like Saba to sue at all?

The statute does not explicitly say that shareholders can bring their own lawsuits to enforce it. So the question is whether courts should “imply” that right—or whether they should leave enforcement solely to government regulators like the Securities and Exchange Commission.

REICHARD: FSCO’s lawyer Shay Dvoretzky argued against any implied right of action.

DVORETZKY: The Court should leave private rights of action to Congress and reject Saba and the Second Circuit's unworkable return to the ancien régime.

His argument was straightforward: If Congress wanted private lawsuits, it could have said so. Courts should not invent rights that lawmakers did not write.

Justice Sonia Sotomayor thought otherwise, reading from House and Senate reports that show Congress expected courts to imply private rights of action under the statute:

SOTOMAYOR: I know that many of my colleagues don't believe in statutory history, but, I don't know how more—much more decisive on congressional intent than those statements are.

Justice Elena Kagan leaned that direction as well, pointing to similar legislation:

KAGAN: You would really have us … look at these two companion pieces of legislation passed at the same time and say that the exact same language has one result in one statute and the other result in another statute? … That seems like a pretty extreme position, honestly.

EICHER: Justice Neil Gorsuch reframed the debate as a separation-of-powers issue. Even if private lawsuits might be useful, he suggested, that is not the Court’s job to decide. 

Listen to this exchange with Paul Clement, lawyer for Saba:

GORSUCH: Less disastrous for private litigants perhaps, but pretty disastrous for our system of government, where the people are supposed to write the laws that govern them, not judges.

CLEMENT: Yeah, I get it. But -­but --but –­

GORSUCH: You get it, the separation of powers might be disastrous? (Laughter.)

REICHARD: So, two very different cases—one about pension math, the other about investment bylaws.

But both ask a similar question: When the rules are unclear, who bears the risk — and who gets to enforce them?

And that’s this week’s Legal Docket!

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