Interest on Unpaid Pension Benefits Inadequate

April 9, 2013 ( – An appeals court recently affirmed a previous award of unpaid pension benefits, but reversed the pre-judgment interest, claiming it is inadequate.

In Schumacher v. AK Steel Corporation Retirement Accumulation Pension Plan, the 6th U.S. Circuit Court of Appeals found that while the plaintiffs in the case were still within their rights to file a claim for unpaid pension benefits and were still entitled to those benefits, the final amount they will receive is still in question. More specifically, the court felt that the standard previously used to calculate the final amount for the plaintiffs did not factor in all relevant circumstances and that the plaintiffs should actually receive more.

Judge Damon J. Keith wrote, “The Schumacher plaintiffs argue that the district court abused its discretion by awarding pre-judgment interest at the statutory rate under 28 U.S. Code Section 1961(a), which at the time was 0.12%. We agree. The district court’s failure to consider the case-specific factors and its mechanical application of the statutory rate under Section 1961 constituted an abuse of discretion.”

In terms of case law to support the 6th Circuit’s decision, Keith cited Rybarczyk v. TRW, Inc., saying, “The district court may award pre-judgment interest as its discretion in accordance with general equitable principles.” However, Keith expressed the opinion that the interest in this case appeared less than equitable, since the calculation of such interest involves “consideration of various case-specific factors and competing interests to achieve a just result.” 

Keith stated that “an award that fails to make the plaintiff whole due to inadequate compensation for her lost use of money frustrates the purpose of ERISA’s remedial scheme,” as per Ford v. Uniroyal. He also cited United States v. City of Warren, referring to the fact that courts “consider compensation for the time value of the lost money as well as the effects of inflation.”

For these reasons, said Keith, the court reversed and remanded the district court’s award of pre-judgment interest at the rate of 0.12%, while affirming the rest of the judgment. In other words, the case will go back to district court to determine a more appropriate interest rate for the lump sum payments of the plaintiffs.

The plaintiffs in this case are 92 former employees of AK Steel Corporation who participated in that company’s Retirement Accumulation Pension Plan. They each elected to receive a lump sum payment of their retirement benefits. They allege that the defendants, the plan administrators, failed to properly calculate those lump sum payments by not using a method known as the “whipsaw formula.”

The plaintiffs’ claims are similar to those put forth in West v. AK Steel Corp. Retirement Accumulation Pension Plan (see “U.S. Supreme Court Turns Away AK Steel Review Request”), but the Schumacher plaintiffs were excluded from that case due to release agreements they signed after the West case began.

The full text of the opinion can be found here.