Plaintiffs Retry UPS Annuity Conversion Lawsuit

The refiled lawsuit argues that the defendants are failing to provide alternative forms of pension benefits that are ‘actuarially equivalent’ to the standard single life annuities that participants earn.

Participants and beneficiaries in the pension plan of the United Parcel Service of America have refiled an Employee Retirement Income Security Act lawsuit against the company in the U.S. District Court for the Northern District of Georgia.

The new complaint represents the plaintiffs’ second try in arguing their case. It closely represents their original complaint, filed in early 2020, but features some important changes.

The plaintiffs suggest that UPS pension plan fiduciaries committed multiple ERISA breaches while calculating the value of joint and survivor annuity benefits to be paid out of the company’s pension plan relative to the value of the plan’s standard single life annuity option. Plaintiffs in such cases say the defendants have failed to pay JSA benefits in amounts that are “actuarially equivalent” to a standard SLA benefit. Such actuarial equivalence is required by ERISA.

The first ruling in the case, filed in late August 2020, sided firmly with the UPS defendants in rejecting the lawsuit. Despite the complexity of the issues at hand, the decision numbered just 20 pages, and it focused exclusively on the fact that the plaintiffs did not exhaust all the potential administrative remedies, which the court determined they must first explore before litigation would be appropriate.

While it advances the same core arguments as the original complaint, the new suit also addresses the question of administrative remedies. It states that the plaintiffs exhausted all administrative remedies under the plans by filing claims in accordance with the retirement and pension plan documents. It notes that administrative claims were submitted in September 2020—immediately after the first decision. According to the complaint, the claim and review process finished in February 2022, when the UPS retirement plan committee and board of trustees denied the appeals filed by plaintiffs, pursuant to the terms of the plans.

As articulated by the plaintiffs, the calculation of the payment amounts of a JSA benefit utilize certain actuarial assumptions that are applied to determine a “conversion factor” that is, in turn, used to determine the “present value” of the future annuity payments. These assumptions are based on a mortality table, which is used to predict how long the participant and beneficiary will live, and the current interest rate, which is used to discount the expected payments based on the expected future earnings on the principle.

In this case, the plaintiffs say their employer is knowingly using outdated mortality tables and inflated interest rate assumptions that lead to a conversion factor that undervalues the JSA benefit relative to the SLA. They say this is the case because mortality rates have generally improved over time, with advances in medicine and better collective lifestyle habits. Thus, people who retired recently are expected to live longer than those who retired in previous generations. By the same token, older mortality tables predict that people near—and past—retirement age will die at a faster rate than current mortality tables.

According to the lawsuit, the UPS defendants calculate the JSA conversion factor, and thus the value of the JSA offered to participants when they retire, using inappropriate mortality assumptions from the 1960s through the 1980s. The suit additionally claims the company uses outdated interest rate assumptions that further dampen the present value of the JSA benefit.

The full text of the new complaint is available here.