Court Clears ‘Actuarial Equivalence’ Lawsuit for Discovery

Several interim rulings have been handed down in the case, which asks some key questions about the meaning of the term ‘actuarial equivalence’ in the context of ERISA litigation.

The U.S. District Court for the District of Massachusetts has issued a new ruling in the complex case known as Belknap v. Partners Healthcare System.

The new ruling sides with the plaintiffs in the case and rejects the defense’s motion to dismiss, based on the court’s determination that there remains “no clear answer,” at least at this stage of the proceeding, as to what is necessary for two retirement benefit forms being considered here to be “actuarial equivalents,” as is required by the Employee Retirement Income Security Act (ERISA).

The ruling notes that ERISA does not explicitly define the term “actuarial equivalent,” and the various federal courts to consider the question have yet to agree on a definition. For that reason and others, the court says, it would be inappropriate to reject the plaintiffs’ claims ahead of discovery and further legal consideration.

A previous ruling was handed down in the case in January, when the parties were given an opportunity to submit supplemental briefings as to the meaning of “actuarial equivalent” under the relevant statutes.

As the first district court ruling explains, ERISA and other federal statues require that different types of qualified pension benefits offered to a single plan’s population must be “actuarially equivalent.” This is to say that if a participant chooses one type of annuity benefit versus another offered in the plan—in this case a joint and survivor annuity (JSA) versus a single life annuity (SLA)—the present theoretical value of each benefit choice must be equal.

“Actuarial equivalence may be a term of art, but the statute does not define it, nor is its meaning clear on this record,” the first decision states. “And under at least one plausible definition of actuarial equivalence, the way in which [plaintiff’s] retirement benefits are valued could violate that requirement.”

It now appears that the defense’s supplemental briefings were not convincing enough for the court to throw out the lawsuit upon preliminary review of the alleged facts. Technically, this new ruling comes after the parties jointly proposed that the plaintiff would respond to the issues raised in the court’s first ruling by filing an amended complaint, to which the defense could respond. On March 3, the plaintiffs filed an amended complaint that named several additional defendants. The defense, in turn, moved to dismiss the amended complaint under Rule 12(b)(6) for failure to state a claim. This new ruling rejects that motion.

At the core of this lawsuit sits the fact there is no basis in the actual text of ERISA to require that an “actuarial equivalent” be based on reasonable assumptions. As the court’s two rulings explain, this is because ERISA Section 1054(c)(3) contains no such reasonableness requirement, while other provisions in ERISA expressly do, which indicates that this omission by Congress in writing the law was deliberate. Nonetheless, the court observes, ERISA Section 1054(c)(3) still requires an early retirement benefit to be the “actuarial equivalent” of the normal retirement benefit under a plan.

“ERISA Section 1054(c)(3) does require that the two benefit forms be ‘actuarial equivalents.’ That term must mean something,” the new ruling states. “But despite using it, ERISA does not further define actuarial equivalence. Presumably, then, Congress intended that term of art to have its established meaning. Thus, the question becomes ascertaining the ‘established meaning’ of ‘actuarial equivalence.’”

The new ruling steps through various proposed definitions of these terms as argued by the defense, but the court finds none of them sufficiently persuasive to halt the lawsuit at this early stage.

“There is no clear answer, at least at this stage of the proceeding, as to what is necessary for two retirement benefit forms to be actuarial equivalents as required by ERISA,” the ruling concludes. “ERISA does not define that term, and courts have yet to agree on a definition. Nor is it clear, at least on this record, whether actuarial equivalence is in fact a term of art, or how actuaries themselves would interpret the term. It may be that expert testimony on the topic is required to resolve the issue. In any event, the court cannot resolve the issue, on this record, on a motion to dismiss.”