Retiree sues IBM alleging shortchanged benefits

A defined benefit plan participant has sued IBM and fiduciaries, alleging that retirees are being shortchanged by the company's use of outdated mortality tables to calculate pension benefit payments.

"Defendants employed actuarial assumptions over 40 years out of date," said the complaint in Knight vs. International Business Machines Corp. et al. "That means plaintiff and class members receive less than the 'actuarial equivalent' of their vested accrued benefit, contrary to ERISA."

Retiree Joshua Knight, who is seeking class-action status for the case, filed suit June 2 in a U.S. District Court in White Plains, N.Y.

The key issue is how to measure differing retirement benefits against the benchmark of a single life annuity, which pays a monthly benefit from the time a participant retires until he or she dies.

For married participants, "the default form of pension payment is a joint and survivor annuity," the lawsuit said. This annuity "provides the participant a payment stream for his own life, and then, if he has a surviving spouse when he dies, for the life of his spouse." Typically, the surviving spouse will receive 50%, 75% or 100% of the benefit the participant had received, the lawsuit said.

To establish a monthly payment, pension funds use actuarial assumptions to convert a single life annuity into to a joint and survivor annuity. ERISA requires such a conversion to be the "actuarial equivalent" of the single life annuity, the lawsuit said.

However, that didn't happen for some retirees because IBM used a 1984 mortality table that was based on the "mortality experience data … observed over the years 1965-1970," the lawsuit said. "Because this data was compiled in an era when the American workforce was predominately male, only 20% of the mortality reflected in the 1984 mortality table is based on female employee experience."

Employees, such as Mr. Knight, who began participating in the IBM Personal Pension Plan before July 1, 1999, have been harmed by this pension calculation, the lawsuit said.

When IBM changed its pension plan to a cash balance plan in July 1999, the company "amended the plan's definition of actuarial equivalence to employ updated actuarial assumptions," the lawsuit said.

"Defendants appear to have recognized that these actuarial assumptions did not pass muster," the lawsuit said.

The lawsuit pointed out that the Society of Actuaries replaced the 1984 mortality table with a 1994 mortality table that acknowledged "people were living longer than expected."

The Society of Actuaries periodically updated its mortality tables "to reflect steady long-term improvements in American's longevity resulting from changes in lifestyle and medical technology," said the lawsuit as it criticized IBM for continuing to use the 1984 table.

Representatives for IBM did not respond to a request for comment.

The IBM Personal Pension Plan, Armonk, N.Y., had $56.8 billion in assets as of Dec. 31, 2020, according to the latest Form 5500.