Court Declares Outdated PBGC Mortality Table Use Invalid

January 23, 2007 ( - A federal appellate court has ruled that an employer with a terminated defined benefit plan improperly calculated lump-sum distributions using an outdated mortality table from the nation's private-sector pension insurer.

The 8 th  U.S. Circuit Court of Appeals decided that Blandin Paper Company of Grand Rapids, Minnesota violated the Employee Retirement Income Security Act (ERISA) when it calculated post-August 1996 lump sum distributions based on the outdated Pension Benefit Guaranty Corporation (PBGC) mortality tables.

Circuit Judge Steven M. Colloton, writing for the appellate court majority in the two-to-one decision, found the firm did not violate ERISA by using the same outdated mortality assumptions for the calculation of lump sum payouts between 1993 and August 1996, when PBGC clarified when the mortality assumptions were to be used.

According to the ruling, Blandin terminated the DB plan in 2003 and gave each participant the choice of transferring a lump sum into a 401(k). The plan allowed the lump sum payments from 1989 until August 1997.

The plan directed that in calculating the distributions, the plan administrator was to rely on PBGC actuarial tables and that until August 1997, the mortality assumptions used in calculating lump sum distributions “shall be those applicable for healthy male lives for plan terminations on the August 1 of the Plan Year in which equivalence is to be determined.”

A plan amendment in August 1997 stated lump sum distributions would be calculated using PBGC assumptions “applicable for healthy male lives for termination of insufficient trusteed single employer plans, on the August 1 of the Plan year in which the benefit distribution is to be made.”

A group of participants filed a lawsuit to challenge the administrator’s method of calculating lump sum distributions. The participants argued that amendments to PBGC’s regulations in 1993 changed the applicable mortality assumptions and that the administrator had used an obsolete table that was less favorable to the participants.

According to the court, by August 1996, because of PBGC rule changes, the first mortality table used by the plan no longer appeared in the federal regulations and no reasonable plan administrator could conclude the first table supplied the applicable mortality assumptions.

The latest ruling in Erven v. Blandin Paper Co.,   8th Cir., No. 05-1695, 1/22/06 is here .