TECO Energy DB Plan Sued by Pension Beneficiary for Shortfall

A former TECO Energy Inc. employee sued the Florida energy company and the TECO Energy Group Retirement Plan—a defined benefit plan—on July 14 alleging material omissions were made in the plan’s summary plan description that caused the plaintiff to lose almost $83,000 in lump sum pension benefits.

In Alejandro Roche et al. v. TECO Energy Inc. et al., the plaintiff alleges one count of fiduciary breach against the defendants for violating disclosure requirements under the Employee Retirement Income Security Act. The suit was filed in the U.S. District Court for the Middle District of Florida.

The complaint centers on the interest rates the plan used to convert the grandfathered pension into a lump sum for certain beneficiaries—participants who participated in the plan before the lump sum adoption rate and were aged 40 or older prior to July 1, 2001.

The fiduciaries allegedly failed to disclose in the required summary plan description the plan’s lump sum calculation methodology and that the interest rates employed in that methodology varied depending on the distribution date the plan used to calculate the lump sum. 

“If the Plan had disclosed in the SPD its lump sum calculation methodology and the interest rates used to compute the lump sum, Roche would have elected to receive his lump sum pension one month sooner and received nearly $83,000 more,” the complaint states. “TECO violated ERISA [Section]102’s disclosure requirements, as well as ERISA [Section] 404’s fiduciary duties, by failing to include this highly material information in the SPD, causing Roche and the other Class members to lose substantial benefits.”

There is an inverse relationship between the interest rate utilized to calculate the present value of a pension annuity and the resultant lump sum, meaning the higher the rate, the smaller the lump sum; the lower the rate, the larger the lump sum, the complaint explains.

“Given the significant impact of interest rates on lump sum present values, it was incumbent upon TECO to ensure the SPD explained that in computing Grandfathered Participants’ pension lump sums (i) TECO would ‘look back’ and select the [IRS] Code [Section] 417(e) segment rates for August of the year before the distribution year, and (ii) if segment rates are increasing in any given year and the lump sum is paid in the following year, it may be significantly reduced,” the complaint states. “Unfortunately for Roche and the other Class members, the SPD TECO provided them failed to explain any of this.”

The complaint claimed that for the plan fiduciaries to use lookback interest rate in “an increasing segment rate environment as occurred in 2022 would necessarily mean that a lump sum paid or payable in 2023 would be smaller than if it were paid in 2022,” effectively ensuring a shortfall and fiduciary breach.  

The Department of Labor requires plan sponsors to observe reporting and disclosures for employee benefit plans, the complaint adds.   

Per the DOL regulation, “The summary plan description shall be written in a manner calculated to be understood by the average plan participant and shall be sufficiently comprehensive to apprise the plan’s participants and beneficiaries of their rights and obligations under the plan.”

Roche worked for TECO, short for Tampa Electric Co., or one of its predecessors from March 1990 until December 2, 2022, his last day of work, and was an eligible participant in the plan, the complaint shows. 

In 2021, TECO had 3,713 employees and annual revenue of $2.7 billion, according to the complaint.

The pension plan was established in 1985 and amended and restated several times thereafter, most recently as of January 1, 2017, according to the complaint.

Roche seeks to recover for himself and all others similarly situated the assets shortfall they experienced in their lump sum pension benefits on account of the SPD’s material omissions, according to the complaint.

The complaint asks the court to certify Roche as representative of the purported class of participants; the lawsuit to class action status; and the class period to apply to all grandfathered plan participants who in 2023 received or will receive an optional pension lump sum from the plan calculated using the Code [Section] 417(e) segment rates for August 2022.

Additionally, the complaint requests the court to instruct TECO to recompute Roche and the class members’ lump sum pension using the August 2021 segment rates and to order the plan to pay Roche and the class members the difference between that amount and the amount they received under the August 2022 segment rates, plus all post-judgment interest and attorneys’ fees, as permitted under ERISA.

Roche is represented by attorneys with the Hoyer Law Group PLLC, based in Tampa, Florida, and attorneys with the law offices of Hertz Schram PC, based in Bloomfield Hills, Michigan.

Representatives for neither TECO Energy, Inc. nor the TECO Energy Group Retirement Plan responded to a request for comment on the litigation.