Takeaway: Defined benefit pension plans retain significant discretion in choosing the specific mortality tables and interest rate data used to calculate benefits. However, plan administrators should be careful not to abuse this flexibility by relying on outdated data in benefit calculations. Data sources should be updated as appropriate to ensure lawful benefit calculations.
The Employee Retirement Income Security Act (ERISA) does not require pension plans to use particular mortality tables or actuarial assumptions in calculating benefits for married participants. But the data used must reasonably reflect the life expectancy of its plan participants, the 6th U.S. Circuit Court of Appeals ruled, reversing two district court opinions.
The issue arose when retired employees of two companies sued their respective employers and pension plans for violating ERISA. The plaintiffs, each of whom was a married participant in defined benefit employee pension plans, asserted that their plans used outdated mortality data to calculate their benefits, resulting in the systematic underpayment of benefits.
Under ERISA, defined benefit plans are required to offer unmarried participants a single life annuity (SLA), providing a defined benefit payment for the duration of their own life. Married participants must be offered a joint and survivor annuity (JSA) option, which provides that if a married participant predeceases their spouse, the spouse will continue to receive benefits for the rest...
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