The parties in a protracted Employee Retirement Income Security Act lawsuit against PricewaterhouseCoopers LLP have reached a preliminary settlement of $267 million.
The settlement, in the case known as known as Laurent v. PricewaterhouseCoopers LLP, would distribute the money to approximately 16,000 affected parties; in exchange, the plaintiffs would move to dismiss the case, according to a motion filed in the case in U.S. District Court for the Southern District of New York. The settlement amount does not include an application for attorneys’ fees or require some of the restructuring steps that the plaintiffs initially requested.
The lead plaintiff, Timothy Laurent, initially brought the case in March 2006. He alleged that employees of PwC who requested their pension as a lump sum upon leaving the company were being underpaid.
Typically under ERISA, such a lump-sum payment’s value is projected into the future using a “fair estimate” of the rate of return until a “normal retirement age.”
In other words, the lump-sum payment should be the total value of the pension if the money were left in the account and allowed to grow normally, minus a discount rate up to a statutory maximum. The “whipsaw” calculation method used here is so named due to the back-and-forth method of calculation, requiring a future projection and then a present-value discount.
However, PwC used a 30-year Treasury return as the interest rate, and calculated the normal retirement age as either 65 years old or 5 years of service, whichever came sooner. Both of these methods were found to be in violation of ERISA in previous hearings, as the 30-year Treasury return is an unreasonably low rate, and 5 years of service is not a normal retirement age for virtually any employee in any industry, and meant that the retirement age of 65 only applied to those hired at age 60 or older.
In other words, PwC used an artificially low rate and projected it too few years into the future in calculating the lump sum, and therefore underpaid pension plan participants. Laurent also alleged that PwC intentionally concealed this fact from pensioners.
Laurent requested that the plan be restructured so as to be ERISA-compliant, and that underpaid pensioners be compensated. PwC argued that this remedy was not authorized under ERISA, which a district court initially upheld. This was overturned on appeal in 2019.
The Department of Labor submitted an amicus curiae brief on behalf of the plaintiffs as part of that appeal, arguing that both remedies were admissible under ERISA.
Though the settlement agrees to a payout for those affected, it does not mention the other legal requests made. The settlement does not require the plan to be restructured, for example.
The settlement notice also requests an additional hearing to have the settlement formally approved by the court, and for the court to set deadlines for the filing of class member objections and an application for attorneys’ fees.