A participant in a Duke University pension plan has sued the university and fiduciaries, alleging the formula for calculating benefits uses outdated mortality tables and shortchanges retirement benefits for certain retirees.
"Defendants harmed the financial security of its former employees and their loved ones, to defendants' financial gain," asserted the complaint in Franklin vs. Duke University et al. filed Sept. 29 in U.S. District Court in Durham, N.C.
The complaint said the university failed to provide an "actuarial equivalent" as required by ERISA for participants choosing pension benefits other than the standard single-life annuity. Participants can select a joint and survivor annuity or a pre-retirement survivor annuity, but these benefit payments require formulas — based on mortality tables and interest rates — to achieve actuarial equivalence to the single-life annuity.
The university changed its formulas July 1 this year, but participants who started receiving benefits before that date were locked into lower payments caused by older mortality tables, the lawsuit said. The plaintiff, Joy Franklin, worked 18 years for the university and began receiving pension benefits in 2018.
"Defendants were aware of the outdated formulas used to calculate these types of benefits," said the lawsuit, which is seeking class-action status.
"They failed to update the formulas sooner or amend the plan, so the updated formulas would apply retroactively," the lawsuit said. "The plan's old formulas caused plaintiff and class members to receive less than the 'actuarial equivalent' of their vested benefits, in violation of ERISA's actuarial equivalence requirements."
As an example, the lawsuit said the old formula for a participant using a joint and survivor annuity could receive a monthly payment between $787 and $880 based on a 65-year-old participant with a 65-year-old spouse. The new formula would produce a monthly benefit of $844 to $915.
"By choosing not to apply the new formulas retroactively, defendants have left participants who started receiving benefits before July 1, 2023, with benefits that fall short of ERISA's requirements," the lawsuit said.
A university representative said in an email that the university doesn't comment on active litigation.
Employees' Retirement Plan of Duke University, Durham, N.C., had $2.6 billion in assets as of Dec. 31, 2021, according to the latest Form 5500.
