Raytheon Company and its pension plan administrator are among the defendants facing a proposed class action lawsuit over the major defense contractor’s alleged failure to pay benefits under a number of its defined benefit pension plans that are actuarially equivalent to a single life annuity. The lawsuit is centered on Raytheon’s retirement pension plans for hourly and salaried employees, and names as defendants Raytheon’s Non-Bargaining Retirement Plan, Bargaining Retirement Plan, and the company’s Retirement Plan for Engineers and Contractors and Aircraft Credit Employees.
Filed in Massachusetts District Court, the case explains participants in the plans accrue benefits in the form of a single life annuity (SLA)—i.e., a monthly lump sum of money paid upon their retirement and continuing for the rest of a participant’s life—that they can receive in one of several options, such as joint and survivor annuities and certain and life annuities. Raytheon and its plan administrator, the case continues, calculate the amount a plan participant will receive each month by converting the plan’s single life annuity offering to any other type of benefit option using actuarial assumptions, including a mortality table, to predict how long a participant and their beneficiary will live. The Employee Retirement Income Security Act—ERISA—requires pension providers that offer options such as joint and survivor annuities and certain and life annuities to pay benefits that are “actuarially equivalent to a single life annuity,” according to the complaint.
The mortality table used to predict how long a pension plan participant and their beneficiary may live is crucial in that it’s used in concert with interest rates to “discount the value of the expected payments to present value,” the lawsuit says. Together, the mortality table and interest rate are used to calculate a “conversion factor” that is then used to determine the amount of a particular type of retirement benefit that would be equivalent to a company’s single life annuity.
“For example, a Qualified Annuity with a ‘conversion factor’ of .90 means participants receive 90% of the monthly retirement benefit they would have received if they had selected the SLA. ERISA requires that these Qualified Annuities be ‘actuarially equivalent’ to an SLA, meaning that the present value of the payment streams must be equal.”
Mortality rates have improved over time, however, and using an older mortality table, as well as using lower interest rates that do not reflect modern mortality rates, will decrease the present value of retirement annuities, the case says. Raytheon and its co-defendants, the lawsuit alleges, use “unreasonable and improper” actuarial assumptions to calculate the company’s retirement annuity offerings, which throws off conversion factors so that they fail to generate actuarially equivalent benefits as required by law. According to the complaint, Raytheon uses mortality assumptions from 1971 to calculate pension benefits, thereby depressing the present value of proposed class members’ benefits.
Per the plaintiff, the lawsuit says the man worked for the defense contractor for more than 32 years and is a participant in the aforementioned hourly employees’ retirement plan. The plaintiff claims Raytheon’s application of an unreasonable conversion factor to his benefits payments has caused him to receive $57 less per month, reflecting a more than $10,700 depression in his retirement benefits.