Dated Mortality Assumption ERISA Lawsuit Will Proceed to Trial

The U.S. District Court for the Eastern District of Virginia has ruled in the case of Herndon vs. Huntington Ingalls, in which the plaintiffs allege their employer is violating the Employee Retirement Income Security Act (ERSIA) by using severely outdated mortality data and inaccurate interest rate assumptions while calculating the value of non-default pension benefits.

Covering just nine pages and recounting the results of a hearing held February 18, the ruling rejects Huntington Ingalls’ arguments that the case should be dismissed for a failure to state an actionable claim under ERISA. The ruling states that the complaint at this stage need not include fully detailed factual allegations as long as it pleads “sufficient facts to allow a court, drawing on judicial experience and common sense, to infer more than the mere possibility of misconduct.”

Allegations in the lawsuit, which now proceeds to discovery and—barring settlement—a full trial, match those included in an emerging class of cases filed against large employers across the United States in the last year. Although each case has its nuances, the basic argument being put forward in the suits is that these employers are failing to pay the full promised value of “alternative benefits,” in that they are failing to ensure different annuity options made available in a retirement plan are actuarially equivalent to the plan’s default benefit, as required by ERISA.

The Huntington Ingalls complaint states that the defendants calculate an annuity conversion factor—and thus the present value of the non-single life annuities—for the legacy part of their pension plan using a so-called “1971 Group Annuity Mortality Table.” Beyond projecting that both men and women will live shorter lives in retirement compared with newly prepared tables, the 1971 table assumes 90% of the company’s employees are male and that 90% of contingent annuitants are female—all while using a 6% interest rate.

“Using the 1971 table, which is based on data collected roughly 50 years ago, depresses the present value of non-single life annuity [SLA] annuities, resulting in monthly payments that are materially lower than they would be if defendants used reasonable, current actuarial assumptions,” the complaint alleges. “By using outdated mortality assumptions to calculate non-SLA annuities under the legacy part, defendants improperly reduce plaintiff’s benefits.”

The ruling observes that life expectancy and interest rates change over time—facts to which both the plaintiffs and the defendants readily consent—and that a straightforward and plain reading of the statute and regulations stipulates that ERISA fiduciaries must use “reasonable” data to ensure that beneficiaries are receiving benefits that are equivalent to a single life annuity.

“The use of mortality data that is over 40 years old could, plausibly, be unreasonable,” the ruling states. “Further, hearing this case on the merits will not require [us] to sit as a legislature. The legislature has already spoken on this issue. The question is whether defendants complied.”

The new ruling goes on to state that the fact that the 1971 table is listed in certain tax laws and regulations as a “standard mortality table” does not make it a reasonable table to calculate plaintiffs’ benefits. Further, the decision concludes, although reasonableness is a range, not a point, that fact does not mean that plaintiffs have not pleaded a case. Thus, plaintiffs’ allegations are not deemed conclusory and rise to the plausibility standard.

The full text of the ruling is available here.