The United States District Court for the Southern District of New York issued an order in an Employee Retirement Income Security Act (ERISA) lawsuit against MetLife by a proposed class of retirees who were previously employed by the company . Put simply, the order partially grants and partially dismisses a motion to dismiss the lawsuit that had been filed by the MetLife defendants, who argued that the plaintiffs lacked standing in this case.
The arguments in the complaint revolve around the subject of the “actuarial equivalence” of the different types of annuity benefits payable under current and past designs of the MetLife pension plan – in particular, they question the method of payment. calculation of reversible and reversible annuity benefits. compared to single annuity payments.
According to the plaintiffs, MetLife is not paying the full promised value of the alternative benefits available under its Metropolitan Life pension plan. The complaint suggests that MetLife is failing to meet its obligations to ensure that the various annuity options under the plan are actuarially equivalent to the plan’s default benefit, as required by ERISA and the terms of the plan itself. even. Essentially, retirees argue that the company is using severely outdated 1971 and 1983 mortality tables to convert default retirement benefits into the alternative benefits they have chosen to receive – in this case, a joint life annuity.
Before examining the factual background which bears on the legality of the alternative benefits offered by the scheme in this case, the district court examines the legislative framework in which the question arises. For example, he notes how ERISA requires defined benefit (DB) plans to provide a qualifying joint and survivor annuity and a qualifying optional survivor annuity to eligible members and beneficiaries. As the court explained, the two forms of alternative benefits must be “the actuarial equivalent of a single annuity for the life of the participant”. The court also observes that regulations promulgated by the United States Department of the Treasury require employers to use “reasonable actuarial factors” in determining the actuarial equivalence of eligible joint and survivors annuities.
Regarding the factual background of the case, the ordinance states that the MetLife plan, with respect to these non-standard annuities, applies actuarial assumptions based on a set of mortality tables and interest rates to calculate an amount of benefit which is assumed to be actuarially equivalent. to the accumulated individual life annuity.
“In other words, the conversion factor, whereby a single life annuity is converted to another form, has two main components: an interest rate and a mortality table, which is a series of rates that predict how much people at a given age will die before reaching the next higher age, ”says the order.
From there, the ordinance provides detailed information on the savings experiences of various principal applicants, whose benefit calculations were made according to life tables created in 1971 or 1983 and with interest rates of 6 % or 5%. For context — and as noted in the complaint — life expectancies have increased dramatically since the 1980s, while interest rates have fallen to nearly zero. The complainants claim that the defendants’ use of these tables to calculate the amounts of non-standard annuities decreases their present value, in violation of ERISA’s requirement that these alternative benefits be “actuarially equivalent” to the standard option of the scheme.
The order then examines and decides on the defense counter-arguments.
“According to the defendants’ first argument for rejection, the alleged lack of guidance in the complaint as to what would constitute a range of reasonable actuarial assumptions, with which to compare the assumptions used by the plan, constitutes a failure to make a substantive claim. plausible that an injury results from the mortality assumptions of the plan ”, indicates the judgment. “The complainants argue that the complaint demonstrates prejudice by comparing their current benefits to the amount they would receive if those benefits were converted with updated mortality tables. This court is not persuaded that the absence of details as to the conversion factors or the range of assumptions that would be considered reasonable – or would be necessary for actuarial equivalence – constitutes a fatal flaw justifying the rejection of the complaint.
“The claimants allege that the regime’s use of decades-old mortality tables violates a specific provision of ERISA, namely the requirement in Section 205 that joint and survivor annuities covered must be equivalent across the board. the actuarial plan to the standard annuity from which they were converted “, continues the decision. “The complaint also refers to the more contemporary mortality tables used by the Society of Actuaries as examples of reasonable alternatives available. The tribunal considers that these allegations provide sufficient context of the nature of the relief sought. Simply put, the applicants seek to reform the regime by replacing the 1971 and 1983 mortality tables with more current tables. … Requiring complainants to be more specific as to which set of assumptions would be reasonable would impose a higher standard of pleading than that required by ERISA or the federal rules of civil procedure.
The ordinance later observes: “In general, certain limits on the discretion of plan administrators in the choice of actuarial methodology are necessary to achieve the protection objectives of ERISA, such as recognized by the second circuit. The alternative interpretation, in which directors are free to shape the assumptions used to calculate actuarial equivalence, would allow all kinds of harms inconsistent with this objective. Allowing plans to establish their own definition of actuarial equivalence would eliminate any protection afforded by this requirement. … In accordance with this standard, many district courts have dismissed motions to dismiss actions challenging the use of allegedly unreasonable actuarial assumptions, which were not intended to violate any other provision of ERISA. “
The only point of success of the defense in the decision is explained by the court as follows: “The defendants correctly argue that [the plaintiffs’] fiduciary breach claims are subject to a different standard in determining the accrual date. In accordance with Article 413 of ERISA, no action may be taken, with respect to the breach by a fiduciary of any responsibility, duty or obligation, more than six years after the date of the last action which constituted a part of the breach or violation, or three years after the earliest date on which the claimant became aware of the breach or violation. In this case, the alleged fiduciary breach occurred with the selection of outdated mortality tables as conversion factors, or the conversion of the claimant’s pension benefits with those tables. This failure must have occurred before November 15, 2012, when the principal claimant selected pension benefits that had already been converted according to the contested formula. Since the principal plaintiff received his first payment under the scheme on December 1, 2012, the court can also reasonably infer that he had knowledge of the alleged fiduciary breach on or after that date, that is to say – say more than three years before filing a complaint. His claim for fiduciary breach must therefore be dismissed as untimely. “
The full text of the judgment is available here.