6th Circuit allows two actuarial equivalence lawsuits to proceed 

The two lawsuits challenge the mortality tables used to convert participants’ accrued benefits to joint and survivor annuities. The plaintiffs allege the mortality tables are outdated and that participants’ annuity payments are smaller than they would be if more current tables were used. The district courts dismissed both cases on the grounds that ERISA doesn’t require pension plans to use particular mortality tables or actuarial assumptions when calculating benefits. 

In a divided (2-1) opinion, the 6th Circuit Court of Appeals ruled dismissal was improper. The court found that because ERISA requires a qualified joint and survivor annuity (QJSA) to be the actuarial equivalent of a participant’s accrued benefit, there is an implicit requirement under ERISA that plans must use reasonable assumptions when assessing equivalence — even though ERISA does not say so explicitly. Because the plaintiffs plausibly alleged that the plans’ annuities were not equivalent on the basis of reasonable assumptions, the court concluded the cases should not have been dismissed. The circuit court did not decide whether the plans’ assumptions were, in fact, reasonable, but instead remanded that issue back to the district courts.

One judge on the panel disagreed, stating that nothing in ERISA can be read to imply a reasonableness requirement, and that the courts should not seek to impose such a requirement by “judicial fiat” when Congress was silent when drafting the law. The judge further argued that additional protections in the Internal Revenue Code and Treasury regulations prevent tax-qualified pension plans from using unreasonable assumptions to determine participants’ benefits, or else the plans would risk disqualification.

The cases are part of a spate of actions challenging DB plans’ actuarial factors used to convert benefits from one form of payment to another or to calculate early retirement benefits. Since December 2018, dozens of lawsuits have been filed along similar lines. The majority of the cases have settled or are in mediation. To date, none of the cases have gone to trial, so no decisions have been issued on the merits.

The decision is unlikely to be the final word on whether ERISA requires actuarial assumptions to be reasonable. The defendants could seek en banc review of the decision by the full 6th Circuit or appeal the decision to the US Supreme Court. In addition, just four days after the 6th Circuit issued its opinion, a district court in Missouri held that ERISA doesn’t require assumptions to be reasonable. The plaintiffs in that case (Landel v. Olin Corp., et al.) have yet to signal whether they intend to appeal the district court’s decision.