A proposed class action alleges UPS has unlawfully failed to pay joint and survivor annuity (JSA) benefits under its retirement and pension plans in amounts that satisfy federal actuarial equivalence requirements, causing thousands of retirees to lose part of their vested monthly benefits.
The 46-page complaint alleges United Parcel Service of America, its retirement plan administrative committee and the board of trustees of the UPS pension plan have run afoul of the federal Employee Retirement Income Security Act (ERISA), in part by using “decades-old” mortality data to calculate retirement and pension plan participants’ monthly payments.
The plaintiffs, eight UPS retirees, look to represent more than 46,000 retirement plan and more than 21,000 pension plan participants who began receiving JSA benefits after January 1, 2013.
Under the UPS retirement and pension plans, participants earn retirement benefits in the form of a single life annuity (SLA), a monthly payment for the rest of their lives while retired, the lawsuit states. Per the suit, the plans also offer UPS retirees the option of receiving monthly benefits in forms other than an SLA, including a number of JSAs. A JSA—joint and survivor annuity—is an annuity for the life of a participant with a contingent annuity for the life of the person’s beneficiary, usually a spouse, the case relays.
“Thus, a 50% JSA is a JSA that pays the spouse half of the amount that was paid to the participant before his or her death; a 75% JSA pays the spouse three quarters.”
The monthly benefits payable as a JSA, regardless of the percentage, the case says, will be less than the amount payable as an SLA. This is because the JSA must account for the likelihood that the plan will have to pay benefits for a longer period should a participant die before their spouse, the suit states. Under federal law, however, the amount that JSA benefits can be reduced is limited, and JSA benefits that pay between 50 percent and 100 percent of the amount paid during the joint lives of the participant and their spouse must be at least the actuarial equivalent of the SLA option. According to the lawsuit, two benefit options are considered actuarially equivalent when they have the same present value, as long as the present values of both benefits are calculated using the same reasonable actuarial assumptions.
The calculation of a JSA or SLA’s present value, i.e., the total amount of future benefits that the participant and beneficiary are expected to receive, involves the inputting of an interest rate and actuarial assumptions concerning mortality, the complaint continues. The suit notes that mortality rates have generally improved over the last several decades. Using older mortality tables to calculate a conversion factor for JSA and SLA values decreases the present value of a JSA and, interest rates being equal, the monthly payment a retiree would receive, the lawsuit says. In the same light, using lower interest rates to calculate actuarial equivalence can also reduce the amount of an individual’s monthly retirement payments, the case adds.
The lawsuit alleges UPS has depressed the present value of JSA benefits, relative to SLA benefits, for retirees by using mortality data from the 1960s through the 1980s, causing monthly payments to be “materially lower” than if the company used reasonable, up-to-date actuarial assumptions.
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