A lawsuit by union pension participants of the former Kellogg Co. that benefits calculations for certain retirees were unreasonable has been rejected by a federal judge in Detroit who ruled “there is no federal regulation to impute a reasonableness requirement” under ERISA for calculating payments they cited.
They sued multiple defendants on Sept. 14, 2023, complaining that pension calculations for union members used out-of-date mortality tables that shortchanged married retirees and violated ERISA.
However, U.S. District Court Judge Stephen J. Murphy III rejected their argument and dismissed his lawsuit with prejudice, meaning they cannot file again in this court.
“Defendants countered that the statute does not contain any reasonableness requirement, and there is no requirement in ERISA that defendants regularly update their (mortality) tables,” Murphy wrote. “The defendants are correct, and the court agrees with their statutory interpretation analysis.”
Although this is a single opinion in a single federal court, the judge’s interpretation of ERISA strikes at the heart of many lawsuits throughout the country in which pension plan participants contend certain retirees were shortchanged due to allegedly faulty benefits calculations based on old mortality tables.
There is no clear theme to the mortality-table lawsuits that pension plan participants have been filing since late 2018. Many cases remain pending. Some motions to dismiss have been rejected; some lawsuits have been settled.
In recent months, for example, Kohler, Sprint and Rockwell Automation have settled mortality-table lawsuits. A lawsuit against IBM was dismissed earlier in April, but that was due to the plaintiff taking too long to file a complaint under ERISA.
The case most similar to Kellogg was the March 2022 ruling by a federal judge in Boston dismissing a claim by a former participant in a Partners Healthcare Inc. defined benefit plan. The plaintiff said the formula for calculating benefits for married participants was unreasonable and a violation of ERISA.
The Boston judge offered the same response about what ERISA covers and doesn’t cover as did the Detroit judge in the Kellogg case. In fact, the Detroit judge referenced the Boston court decision in his opinion. (After the Boston plaintiff lost the case, he filed a notice of appeal. The appeal was withdrawn in August 2022).
The Kellogg case is now called Reichert at al. vs the Bakery, Confectionary, Tobacco Workers and Grain Millers Pension Committee et al. The defendants are the pension committee of the two unions; plus Kellanova and WK Kellogg Co.; the Kellanova Pension Plan; and unnamed plans’ fiduciaries. Kellanova and WK Kellogg are the two companies created by the split of Kellogg Co. in September 2023.
The plaintiffs alleged that the union pension plans violated ERISA’s standard for actuarial equivalence when calculating benefits for married participants. The standard measurement for a sole participant is a single-life annuity.
One alternative for married participants is a joint and survivor annuity, or JSA, which provides retirees with a monthly annuity for the rest of their lives and, when they die, a contingent annuity for the life of their spouse or beneficiary, according to the lawsuit.
ERISA says a JSA must be "actuarially equivalent" to the single-life annuity, using formulas based on actuarial assumptions — consisting of an interest rate and mortality table — to convert a single-life annuity to a JSA. Out-of-date mortality tables impair the actuarially equivalence of the JSA, the lawsuit said.
However, Murphy, citing case law and existing regulations, wrote that “actuarial equivalence” applies only to a lump-sum payment. ERISA “does not require that plans employ certain assumptions or mortality tables,” he added.
The law “does not impute a ‘reasonableness’ requirement on the actuarial equivalence computation (for a JSA),” Murphy wrote. “Unlike the law applicable to a lump sum payment, there is no federal regulation to impute a reasonableness requirement.”
The judge pointed out that Congress included reasonableness requirements “in other ERISA provisions and identified specific actuarial factors that should be used when calculating other payments.”
Because he is bound by Supreme Court rulings, the judge must assume that Congress intentionally omitted mortality tables and JSA calculations when writing ERISA. “If Congress intended to include a reasonableness requirement it would have done so,” Murphy wrote.
Kellogg Co. Pension Plan, Battle Creek, Mich., had $1.2 billion in assets, and the Kellogg Company Bakery, Confectionery, Tobacco Workers and Grain Millers Pension Plan, Battle Creek, Mich., had $518 million in assets both as of Dec. 31, 2022, according to Form 5500s.
