Outdated mortality table lawsuits reveal few legal certainties

More than three years after the first lawsuits were filed, the impact remains unclear for sponsors sued by retirees who claim they were shortchanged on their pension payments because plans used out-of-date mortality tables.

At least 14 ERISA lawsuits have been filed since December 2018 in cases affecting defined benefit plan participants who retired before the traditional retirement age, usually 65. Seven cases have been settled. Some settlements took place after a federal court judge denied a sponsor's motion to dismiss; some took place after a judge granted a motion to dismiss.

Plaintiffs' lawyers say the sponsors could address the issue by using more current mortality tables when calculating benefits for early retirees.

"A lot of plans were asleep at the switch," said Mark D. Boyko, a St. Louis-based partner at Bailey & Glasser LLP, referring to mortality tables that are many decades old. "They kicked the can down the road." Mr. Boyko's firm and its co-counsel, Izard, Kindall & Raabe LLP, West Hartford, Conn., have filed most of the mortality table cases.

Sponsors' attorneys say the mixture of settlements, dismissals and denials of dismissal by federal court judges creates uncertainty for their clients.

"There have been no decisive rulings from the courts," said Nancy Ross, a Chicago-based partners for Mayer Brown LLP, which defends sponsors in ERISA cases.

"There has been no guidance" from various courts, in part because settlements don't confer legal precedent and because motions to dismiss — whether granted or rejected — don't delve into substantive details, Ms. Ross added. Her firm represents one sponsor in a mortality table lawsuit.

The paucity of case law and the proliferation of settlements have prompted ERISA attorneys to tell their DB clients to examine the actuarial assumptions used to calculate benefits for people who retire early to determine if changes are advisable.

Although the facts of each case are different, there are two common themes to these lawsuits. Plaintiffs contend that the mortality tables for calculating benefits for these retirees are too old, often established several decades ago, thus failing to account for longer life spans. They also maintain that the interest rates used in conjunction with the mortality tables to calculate benefits are too low to provide a total payout that is actuarially equivalent to the amount they would have received if they had retired at the normal retirement age.

When sponsors calculate the benefits for early retirees, they compare a single life annuity for someone at age 65 vs. an alternative annuity, such as a joint-and-survivor benefit or a certain-and-life annuity, to determine actuarial equivalence.

Federal law requires sponsors to include a mortality table and an interest rate in their plan documents, said Gregory J. Ossi, a Washington-based partner at Faegre Drinker Biddle & Reath LLP. The key issue is whether the combination of these factors is actuarially equivalent to the single-life annuity.

"You can offset an outdated mortality rate with a higher interest rate," said Mr. Ossi.

The same holds true for a more recent mortality table paired with a lower interest rate as long as the formulas create a payment that is the actuarial equivalent of a single-life annuity, said Mr. Ossi, adding that his firm does not currently represent clients in the mortality table cases, but has experience litigating mortality table issues in multiemployer pension plan cases.

Gauging the impact of DB plan calculations for early retirees can be difficult, sponsors' attorneys say. An employer can have more than one pension plan and different rules may apply to different plans, which can have different formulas that affect different classes of employees as well as those hired at different times.

"It's horribly complicated," said Joseph J. Torres, a Chicago-based partner at Jenner & Block LLP, adding that previous court cases aren't much help.

"It's difficult to read into a motion to dismiss being denied and you can't read into settlements either," said Mr. Torres, whose firm defends sponsors in ERISA cases but doesn't have any clients in pension mortality table cases. Settlements can be the result of many calculations — primarily a sponsor's analysis of whether winning a case or winning a motion to dismiss outweighs the cost of fighting it or losing it, Mr. Torres said.

The mortality-table settlements provide little insight into litigation because only two have been announced publicly — Raytheon Co., which has since merged into Raytheon Technologies Corp., Waltham, Mass., for $59.2 million in February 2021, and Huntington Ingalls Industries Inc., Newport News, Va., for $2.8 million in November 2021.

The other five settlements have disappeared quietly from court dockets. The typical description in these cases is a one-page notice by attorneys from both sides saying their respective claims are dismissed with prejudice — meaning that a plaintiff cannot refile the case again in the same court. The dockets contain no information on the nature of the agreement, the amount of any settlement or the number of recipients of a settlement.

Sponsors using this form of settlement were PepsiCo Inc. in November 2019; American Airlines Inc., July 2020; Anheuser-Busch Cos. LLC, November 2020; Rockwell Automation Inc., January 2021; and U.S. Bancorp, September 2021.

Within this young field of ERISA litigation, there have been no trial verdicts and no appeals court rulings among cases spread over multiple jurisdictions. "We haven't gotten deep into what plans do behind the scenes," Mr. Ossi said.

Based on the litigation history so far, Ms. Ross predicted it will be several years before some form of coherent case law emerges. Until then, "these cases will be a battle of the experts," she said. "It's the wild, wild West."

Uncertainty is perhaps the one area in which sponsors' attorneys and plaintiffs' attorneys agree.

"The courts are struggling their way through all of the cases," said Mr. Boyko, the plaintiffs' attorney. "There will be a period — maybe an extended period — of legal uncertainty."

Although courts look at mortality tables and interest rate data, "the larger issue" for the courts and sponsors is if these combined calculations aren't actuarially equivalent to the single-life annuity, he said. The goal should be a reasonable formula that yields actuarially equivalent payments for early retirees, he said.

Mr. Boyko's firm and its co-counsel represent a plaintiff in a case that ERISA attorneys say is the most significant so far — Scott Belknap vs. Partners Healthcare Inc. et al.

Mr. Ossi called it the "meatiest" court case because it was a summary judgment that contained more detail than a motion-to-dismiss opinion.

U.S. District Court Chief Judge F. Dennis Saylor IV in Boston issued the March 4 summary judgment in favor of Partners Healthcare, Boston, which had been sued by a participant claiming to have been shortchanged due to an early retirement payment calculation based on a 1951 mortality table.

The Partners case illustrates the struggles that judges have had in applying terms like "actuarial equivalence" and "reasonableness" to benefit calculations for early retirees.

A section in ERISA covering retirement benefits "contains no reasonableness requirement," Mr. Saylor wrote.

"It provides only that a retirement benefit taken in some other form or at some other time 'shall be the actuarial equivalent' of an SLA (single-life annuity) commencing at normal retirement age," the judge wrote. "It says nothing about how actuarial equivalence is to be calculated; it does not specify what inputs to use, nor does it explicitly require them to be 'reasonable' — either individually or in the aggregate. Generally, courts must assume that any such omission from the text of ERISA is deliberate."

The judge added that if Congress had wanted this section of ERISA "to require actuarial equivalence to be calculated using 'reasonable' assumptions, it knew how to do so."

For example, ERISA contains a section on withdrawal liability that says employers must use "actuarial assumptions and methods which, in the aggregate, are reasonable," he wrote.

Another ERISA passage says that employers must use specific actuarial factors for calculating lump-sum benefits — but not annuities, he added.

"The fact that the regulations are silent with respect to annuities is not an invitation to borrow freely from the regulations concerning lump-sum benefits," Mr. Saylor wrote. "To the contrary, the omission should be presumed to be significant, not accidental."

Mr. Boyko said "we vehemently disagree" with the judge's ruling on whether the concepts of "actuarial equivalence" and "reasonableness" apply to calculations of benefits for early retirees. Two weeks after the judge dismissed the complaint, Mr. Boyko's firm and its co-counsel filed a notice of appeal to the First Circuit Court of Appeals, Boston, potentially setting up the first big test in the mortality-table litigation.