Eleventh Circuit limits pension cuts for retirees, surviving spouses

Retirees and surviving spouses got a sturdier rule in the federal Eleventh Circuit, where judges said a pension plan cannot shrink annuity payments by baking in life-expectancy or interest assumptions that a reasonable actuary would not use. The case involved Southern Company Services and the Southern Company Pension Plan.

The court said the Employee Retirement Income Security Act, or ERISA, does not treat plan language as a blank check. Its actuarial-equivalent rule and nonforfeiture protections give participants and spouses real rights when one form of annuity is converted into another.

The formula has to make sense

When a plan turns one pension benefit into another, the court said the math has to reflect what a reasonable actuary would do. That matters because the assumptions behind the conversion can change the size of the check a retiree or surviving spouse actually receives.

The judges said ERISA’s protections are substantive, not just technical. In their view, the statute does not let a plan lock in numbers that are unrealistic from the start and then use that paperwork to justify paying less.

Written down is not the same as fair

Southern Company’s side argued that ERISA should allow any assumptions at all, so long as they are written into the plan ahead of time. The court rejected that approach.

It said unrealistic life-expectancy or annual-interest assumptions are not automatically acceptable just because they appear in plan language. For administrators, that narrows the room to design conversion formulas that underpay people by starting with bad assumptions.

Why the ruling matters

The decision matters for retirees, surviving spouses and current and former employees in defined-benefit plans. If a plan converts one annuity form into another, it has to use actuarial assumptions a reasonable actuary would use.

That gives workers and families a stronger argument when survivor benefits look too low, and it gives pension administrators a clearer standard to follow when they calculate those payments.