The U.S. District Court for the Eastern District of Missouri, Eastern Division, has issued a ruling in favor of the plaintiffs in an Employee Retirement Income Security Act (ERISA) lawsuit known as Duffy v. Anheuser-Busch Companies.

In the underlying complaint, the plaintiff alleges Anheuser-Busch (A-B) has failed to pay benefits under a pension plan in amounts that are “actuarially equivalent” to a single-life annuity, in violation of ERISA. His allegations echo those made in a sizable batch of lawsuits filed in the past several years against large employers across the United States—including UPS, MetLife, Pepsi, American Airlines and others.

Plaintiffs in these cases are making a somewhat subtle but potentially financially significant argument that seeks to remedy alleged failures by pension plans to pay joint and survivor annuity (JSA) benefits in amounts that are “actuarially equivalent” to a single life annuity (SLA) benefit. Such actuarial equivalence is required by ERISA.

The plaintiffs in such cases suggest that, by not offering JSAs that are actuarially equivalent to the single life annuities that participants earn, the defendants are causing retirees to lose part of their vested retirement benefits in violation of ERISA. They are seeking various remedies from the federal courts, including both monetary damages as well as mandated structural reforms to their pension plans.

In this particular case, the plaintiff alleges A-B’s use of a mortality table from 1984 to determine present-day life expectancies improperly decreases the amount it pays in various annuities under the plan. Specifically, the plaintiff claims that A-B “wrongfully reduced the present value of his annuity payments at the time of his retirement by $4,385.50.”

While that underpayment figure might seem modest for such a large employer as A-B, the potential for class certification covering tens of thousands of workers and retirees dramatically raises the stakes in these lawsuits. Indeed, in addition to seeking equitable relief, the plaintiff here seeks reformation of the plan and recovery of benefits.

For its part, A-B moved to dismiss the suit, essentially arguing that it uses reasonable actuarial assumptions permitted by law, and that the plaintiff as a matter of law has actually failed to plead otherwise. The new ruling flatly rejects these arguments and permits all parts of the complaint to proceed to discovery and trial.

Details from the Ruling

Case documents show the A-B pension plan includes five sub-plans, each of which calculate their benefits using the 1984 mortality table and either a 6.5% or 7% interest rate. Technically, the different sub-plans are not relevant to the present motion, so the court addresses the motion “in the context of the sub plan in which [the plaintiff] is participant,” i.e., the “Retirement Plan for Hourly Employees of Busch Entertainment Corporation Pension Plan.”

In its unsuccessful dismissal motion, A-B asserted five arguments. First, A-B argued ERISA grants employers wide latitude in selecting the actuarial assumptions used by their plans and does not require employers to use a particular interest rate or mortality table when calculating the actuarially equivalent value of benefits. Second, A-B contended that Treasury Regulations authorize plans to describe benefits within a 10% range as approximately equal and the difference between the monthly benefit a participant receives and the benefit he would like to receive falls within that range.

Third, A-B claimed that the law requires only that the net effect of the actuarial calculation not result in an unreasonable reduction in benefits and here, the plaintiff has not alleged, and cannot allege, that both the interest rate and mortality table used in this plan result in an unreasonable reduction. Fourth, A-B asserted that even if only the mortality table assumptions were required to be reasonable, the 1984 table satisfies that standard because Treasury Regulations continue to specify the use of that table for performing various actuarial calculations. Finally, A-B argued that ERISA does not require a plan to periodically update its actuarial assumptions.

The court’s ruling addresses each argument in turn, rejecting them all.

Considering the first two arguments, the court says, A-B in its dismissal motion “provides no citation to support its arguments that [the plaintiff] must show that the benefit he receives could not have been produced by any reasonable set of actuarial assumptions, nor has the court found any.” Furthermore, the court states, a plaintiff need not rule out every possible defense in his complaint to survive a standard dismissal motion.

“Regardless of any latitude or discretion ERISA may (or may not) provide to plan sponsors, [the plaintiff] sufficiently alleges that A-B uses unreasonable actuarial factors that result in benefits that fail to meet ERISA’s actuarially equivalent requirement,” the ruling explains. “Because he has done so, the court will not dismiss his complaint on this basis.”

On the argument that ERISA does not require pension plans to periodically adjust their interest rate or mortality assumptions, the court is equally skeptical.

“A-B cites to McCarthy v. Dun & Bradstreet Corporation,” the decision states, “in which the Second Circuit summarized the plaintiffs’ argument as advocating for a ‘periodic adjustment of the rate used to determine actuarial equivalence.’ While the McCarthy court stated that ‘ERISA does not specifically require that retirement plans periodically adjust their actuarial interest rates,’ it did not hold that a plan never has to update its actuarial assumptions and can continue to use unreasonable assumptions.”

The ruling notes that the plaintiff does not allege that the plan at issue here must periodically update any of the actuarial assumptions. Instead, he argues, and sufficiently alleges, that the actuarial assumptions A-B uses to calculate alternative benefits are unreasonable and fail to conform to ERISA’s actuarial equivalence requirement. 

“That is all he must do at the pleading stage,” the court concludes.