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Federal District Court Dismisses Pension Actuarial-Equivalence Lawsuit

A federal district court recently handed plan sponsors their first victory in a string of actuarial equivalence lawsuits filed against large defined benefit pension plans. Although the decision is a positive development for plan sponsors, with many similar class action lawsuits pending, it will not be the final word on the issue.

IN DEPTH


Background

Since late last year, plaintiffs’ firms have filed lawsuits against nine large pension plan sponsors alleging that the actuarial factors that each used to calculate benefits are outdated and inherently unreasonable. The plaintiffs contend that the outdated and unreasonable factors cause participants to receive smaller benefits than what they are entitled to receive under the Employee Retirement Income Security Act of 1974 (ERISA).

Defendants in each of these large lawsuits have filed motions to dismiss on various grounds. The first two courts to decide such motions ruled for the plaintiffs, determining that the lawsuits sufficiently alleged, at the pleading stage, that the plans may have used unreasonable assumptions and violated ERISA. But, a federal district court recently handed plan sponsors—and Pepsi—their first victory, by dismissing the plaintiffs’ claims.

Discussion

The court’s decision in DeBuske , et al. v. Pepsico, Inc., et al. is a positive development for plan sponsors. However, the DeBuske court based its decision on a narrow statutory interpretation of ERISA that may not extend to other cases. In DeBuske, the plaintiffs specifically alleged that the actuarial factors used by the plan to convert benefits from a single life annuity to an optional form of payment were unreasonable and outdated, resulting in smaller benefits. As a result, the plaintiffs argued that use of such factors violated the anti-forfeiture rule under ERISA, which prohibits forfeiture of “normal retirement benefits” payable at a participant’s “normal retirement age.” However, the plaintiffs did not allege that they retired at or after normal retirement age. Because the plaintiffs’ complaint did not focus on the amount they might receive at normal retirement age, the DeBuske court concluded that the plaintiffs failed to allege a violation of ERISA’s anti-forfeiture rule and dismissed the complaint.

McDermott Thoughts

The DeBuske decision will not be the final world on pension plan actuarial equivalence lawsuits. There are many similar class actions pending on this issue, and the DeBuske decision addressed a fairly narrow question that may have limited application to other actuarial equivalence lawsuits. In addition, the DeBuske plaintiffs likely will appeal the district court’s decision.

© 2019 McDermott Will & Emery

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About this Author

Associate

Lisa Loesel focuses her practice on employee benefits matters, including the design, amendment and administration of pension and 401(k) plans, nonqualified deferred compensation arrangements, and employee stock ownership plans. She counsels privately and publicly held corporations regarding the employee benefits design and transition matters arising from corporate mergers, acquisitions and divestitures. She also advises clients regarding fiduciary and plan investment issues under the Employee Retirement Income Security Act of 1974 (ERISA). Lisa also has experience counseling plan...

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Partner

Rick Pearl focuses his practice on litigation involving the Employee Retirement Income Security Act of 1974 (ERISA). He represents companies, their benefits committees, plan administrators, fiduciaries, and service providers in complex, class-action litigation and Department of Labor lawsuits, audits, and investigations.  His particular expertise is with actions for breach of fiduciary duty and prohibited transactions.

His litigation experience includes high-profile 401(k)/403(b) lawsuits alleging excessive fees and imprudent investment options and ESOP actions involving valuation issues. 

Rick also helps clients with procurement and renewal of ERISA fiduciary-liability insurance policies. He regularly speaks at national conferences and advises clients on the scope of permissible indemnification agreements under ERISA and state law, and assists with structuring insurance and indemnification programs to protect assets.

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