Two participants in a Kohler Co. defined benefit plan have sued the company and the pension plan saying plan executives used an antiquated mortality table to calculate retirement benefits in violation of ERISA.
"Kohler was aware of the outdated actuarial assumptions used to calculate these types of benefits and failed to update the formulas sooner or amend the plan so the updated formulas would be applied retroactively," said the complaint filed Sept. 19 in Holloway and Kohlhagen vs. Kohler Co. and Kohler Co. Pension Plan.
"By using outdated formulas to calculate benefits prior to 2021, Kohler caused plaintiffs and class members to receive less than the 'actuarial equivalent' of their vested benefits, in violation of ERISA's actuarial equivalence requirements," said the lawsuit filed in U.S. District Court in Milwaukee.
Actuarial equivalent is the ERISA requirement that pension plans must follow when calculating benefits other than the standard single-life annuity, a monthly benefit for participants. Plans can offer alternatives such as a joint and survivor annuity, which provides for spouses upon death of participants, or a certain and life annuity, which guarantees payments for a certain number of years.
To convert a single-life annuity into a joint and survivor annuity, pension plans use a formula based on interest rates and mortality tables. These annuities "are actuarially equivalent when the present values of the two benefits are the same, based on reasonable actuarial assumptions," the lawsuit said.
The plaintiffs argued that Kohler used a mortality table based on data from the 1960s, neglecting the fact that people live longer and thus manipulating the formula to produce a lower payout.
Kohler changed the formula effective Jan. 1, 2021, but it didn't provide retroactive calculations. Danny Holloway, who began receiving joint and survivor benefits in September 2019, and James Kohlhagen, who began receiving joint and survivor benefits in October 2020, are locked into the old formula. They are seeking class-action status to cover other participants who retired before the new formula took effect.
"Kohler Co. disputes all claims in this recently filed lawsuit and is confident that it will prevail should this matter proceed in litigation," according to an emailed company statement.
Kohler Co. Pension Plan, Kohler, Wis., had $1.7 billion in assets as of Dec. 31, 2021, according to the latest Form 5500.