UPS Defeats ‘Actuarial Equivalence’ ERISA Challenge

The defense has prevailed on technical grounds in a lawsuit that argues plan sponsors should be required to use fresh mortality and interest rate assumptions when converting between the standard and alternative forms of annuities to be paid out by a pension plan. 

The latest decision in an Employee Retirement Income Security Act (ERISA) lawsuit comes out of the U.S. District Court for the Northern District of Georgia’s Atlanta Division.

Plaintiffs in the case suggest the United Parcel Service of America (UPS) committed multiple fiduciary breaches while calculating the value of joint and survivor annuity (JSA) benefits to be paid out of the delivery company’s pension plan relative to the value of the plan’s standard single life annuity (SLA) option. The new ruling, however, sides with the defense’s arguments that the plaintiffs have not fully exhausted all the potential administrative remedies available under the plan, and so the suit has been dismissed.

Because of the technical nature of the ruling, the decision does not offer much guidance about how much discretion a plan sponsor has in this situation. By way of background, the plaintiffs’ suit sought to remedy “failures to pay joint and survivor annuity benefits in amounts that are actuarially equivalent to a single life annuity benefit to pension plan participants and their beneficiaries.” Such actuarial equivalence is required by ERISA, but the term itself is not defined in detail in the statue.

This fact has resulted in a rash of closely related lawsuits that have been filed in the past few years, naming such well-known defendants as UPS, MetLife, Pepsi and American Airlines. Though the exact details differ, at the core of each case is the argument that plans are failing to offer JSAs that are actuarially equivalent to the SLAs that participants earn. The plaintiffs in such cases say this means the defendants are causing retirees to lose part of their vested retirement benefits, in violation of ERISA.

The lawsuits further claim the companies are using outdated interest rate assumptions that additionally dampen the present value of the JSA benefit. So far, different district courts have reacted contrarily to such claims, based on local precedents and the varying facts of the cases.

Despite the complexity of the issues at hand, the new UPS decision stretches to just 20 pages, given its focus on the fact that the plaintiffs did not exhaust all the potential administrative remedies which the court says they must first explore before litigation is appropriate. The ruling is also written in uncharacteristically large font for a legal decision, making it an easier read than the typical ERISA ruling.

“In the [11th U.S. Circuit Court of Appeals], a plaintiff in an ERISA action must exhaust any available administrative remedies before filing suit,” the decision states. “The 11th Circuit strictly enforces the exhaustion requirement in order to reduce the number of frivolous lawsuits under ERISA; minimize the cost of dispute resolution; enhance the plan’s trustees’ ability to carry out their fiduciary duties expertly and efficiently by preventing premature judicial intervention in the decisionmaking process; and allow prior fully considered actions by pension plan trustees to assist courts if the dispute is eventually litigated. … As a preliminary matter, plaintiffs have failed to plead either exhaustion or an exception to the exhaustion requirement on the face of their complaint. Their claims are due to be dismissed on this basis alone.”

Even so, for the sake of “clarity and scrupulousness,” the ruling still addresses the plaintiffs’ arguments that the exhaustion requirement does not apply to their claims and that, even if exhaustion was required, it is excused as futile under the circumstances. While there is a decent amount of technical discussion on both points, the court ultimately sides firmly with the defense.

The full text of the ruling is available here.