Ambiguity as to how annuity payouts should be handled under federal benefits law has spawned a wave of lawsuits from retirees who say they were shortchanged due to outdated actuarial data, reported Law360.
The publication turned to benefits and executive compensation partner Gregory Ossi for his insight on a proposed class action brought upon by retirees who claimed Partners Healthcare System violated the Employee Retirement Income Security Act (ERISA). Ossi shared that more lawsuits could arise if the retirees prevail in the Partners Healthcare System case. Even if they don’t, Ossi said, employers are already presented with the inquiry of whether to update old tables if they have them.
“If you start making those changes, what does that mean? Does that mean you have to make a change every year? Suppose our mortality goes down because of COVID, but then it comes back up in a couple of years?” added Ossi.
Ossi discussed how mortality tables impact the lawsuits with Pensions & Investments. He highlighted that federal law requires sponsors to include a mortality table and an interest rate in their plan documents, and that the key issue is whether the combination of these factors is actuarially equivalent to the single-life annuity.
“You can offset an outdated mortality rate with a higher interest rate,” Ossi noted. The same holds true for a more recent mortality table paired with a lower interest rate as long as the formulas create a payment that is the actuarial equivalent of a single-life annuity, he explained.
The full articles are available for Law360 and Pensions & Investments subscribers.