A wave of high-profile ERISA litigation is forcing employers to confront long-ignored risks buried inside their defined benefit pension plans.
The Eleventh Circuit’s decision in Drummond v. Southern Company Services has sharpened legal exposure for plan sponsors still relying on decades-old actuarial assumptions, particularly fixed interest rates and outdated mortality tables.
Raytheon settled a related pension equivalence case for around $59 million, while CITGO reached a settlement of approximately $10 million, signalling how costly this litigation can become.
Pending cases involving MetLife and Southern Company Services mean the legal landscape remains unsettled, making proactive compliance reviews more urgent than ever for plan sponsors.
The original lawsuit was filed on September 2, 2022, by Cohen Milstein and co-counsel on behalf of participants and beneficiaries of the Southern Company Pension Plan, alleging violations of ERISA.
Plaintiffs argued the plan used actuarial assumptions more than 70 years out of date when calculating joint and survivor annuities and pre-retirement survivor annuity charges, leaving married retirees short-changed.
The U.S. District Court for the Northern District of Georgia initially granted Southern Company’s motion to dismiss in July 2024, ruling that ERISA does not explicitly require plans to use reasonable or specified interest rates and mortality tables.
The Eleventh Circuit reversed that position, holding that ERISA’s actuarial equivalence provision requires plans to use assumptions that a reasonable actuary would employ at the time of benefit determination.
The Department of Labor supported the plaintiffs, arguing in its brief that ERISA’s requirement for actuarial equivalence between joint-and-survivor and single-life annuities necessarily demands the use of reasonable actuarial assumptions.
Legal advisers are now recommending that plan sponsors conduct a privileged review with actuaries and legal counsel to assess whether existing actuarial interest rates and mortality tables remain legally defensible.
One practical step is updating plan documents to incorporate by reference the IRC Section 417(e) mortality and interest rates, though doing so may trigger anti-cutback rule considerations under IRC Section 412(d).
Plan sponsors who retain their own assumptions should implement a formal governance process, with retirement committee charters requiring a review every three to five years alongside the plan’s actuary.
Documentation is equally important, with meeting minutes and actuary reports providing a clear record of the committee’s periodic determinations and any recommendations received.
Frozen legacy plans and plans merged from older arrangements are particularly vulnerable, as they often retain pre-1980s tables and fixed rates that no longer reflect current economic or demographic conditions.
The class action trend targeting actuarial equivalence calculations shows no sign of slowing, and plan sponsors who delay reviews risk joining a growing list of defendants facing nine-figure settlement demands.