A participant in a Kellogg Co. union pension plan has sued the company, its fiduciaries, the union plan and a separate company pension plan, alleging that the use of old mortality data for pension benefit calculations violates ERISA and shortchanges retirees.
"Defendants use outdated formulas, which, upon information and belief, are based on outdated actuarial assumptions, to calculate these types of benefits," said the complaint filed Sept. 14 in U.S. District Court in Detroit in Thomas N. Reichert vs. Kellogg Co. et al.
One of the defendants is the Kellogg Co.-Bakery, Confectionery, Tobacco Workers and Grain Millers Pension Plan. Reichert is a participant in the union plan, and he is seeking class-action status for participants in both the union plan and the company pension plan.
His criticism focuses on how the pension executives calculate certain alternative pension benefits based on the standard single-life annuity.
ERISA requires alternative benefits to provide an "actuarial equivalent" to the single-life annuity, and Reichert said both pension plans fail to do so.
One alternative is a joint and survivor annuity, or JSA. "For married participants the default form of pension payment is a JSA, which provides retirees with a monthly annuity for their lives and, when they die, a contingent annuity for the life of their spouse or beneficiary," the lawsuit said.
ERISA says a JSA must be "actuarially equivalent" to the single-life annuity. This requires pension plans to use formulas based on actuarial assumptions — consisting of an interest rate and mortality table — to convert a single-life annuity to a JSA.
The Kellogg formulas result in participants "receiving less than the 'actuarial equivalent' of their vested benefits, in violation of ERISA's actuarial equivalence requirements," the lawsuit said.
"Plaintiff is currently unaware of the exact formulas utilized in each subpart of the (company pension)," but he alleged that the formulas are "unreasonable," the lawsuit said. For example, one subpart uses a mortality table with data that is more than 50 years old.
The lawsuit also said the plaintiff was unaware of the exact formulas used by the union pension plan, but he alleged that the formulas are unreasonable.
The lawsuit alleged that Kellogg uses up-to-date mortality tables when it provide pension obligation information to the Securities and Exchange Commission and to shareholders via annual 10-K statements.
"We do not comment on pending litigation," an emailed company statement said.
Kellogg Co. Pension Plan, Battle Creek, Mich., had $2.1 billion in assets, and Kellogg Co.–Bakery, Confectionery, Tobacco Workers and Grain Millers Pension Plan, Battle Creek, Mich., had $783 million in assets both as of Dec. 31, 2021, according to Form 5500s.