Three plaintiffs allege in a proposed class action that PepsiCo, Inc., its Employee Benefits Board, and the PepsiCo Administration Committee have failed to pay benefits under the company’s Salaried Employee Retirement Plan that are actuarially equal to a single life annuity for the life of a plan participant.
The complaint explains that participants in the Pepsi retirement benefits plan accrue benefits in the form of a single life annuity that begins when they retire and ends when they die. The value of the single life annuity payment stream is based on an individual’s wages and years of service with Pepsi, the suit continues, and not current life expectancies or interest rates.
Retirees also have the option of choosing a joint and survivor annuity that pays a retiree lower monthly pension payments—lower than those offered through a single life annuity—in exchange for a spouse to continue receiving pension payments after the individual’s death, the suit adds. To calculate the present value of future joint and survivor annuity payments, retirement plan sponsors use actuarial assumptions that are based on mortality tables and long-term interest rates, the lawsuit says.
Federal law requires the present values of joint and survivor annuities be equal to the present value of a single life annuity, the complaint reads, in order to establish actuarial equivalence in the two different benefit payment streams. Citing alleged Employee Retirement Income Security Act (ERISA) violations, the lawsuit alleges the defendants failed to offer retirees and their beneficiaries joint and survivor annuities and several other alternative benefits that were actuarily equivalent to the single life annuity offering. In fact, the joint and survivor annuities offered to Pepsi retirees were materially lower than single life annuities, according to the suit.
This discrepancy, the plaintiffs say, stems from the defendants’ failure to use reasonable market mortality tables and interest rates to calculate the value of joint and survivor annuity payments, which “substantially damaged” retirees who the lawsuit says lost part of their vested benefits.