DOL Recommends Reopening Retirees’ Lawsuit Against IBM

The Department of Labor is urging the U.S. 2nd Circuit Court of Appeals to reopen a lawsuit filed against IBM Corp. and its plan administrator committee in June 2022.

The technology company was accused by three long-time IBM employees of using outdated mortality tables and inflated interest rate assumptions to determine the value of annuity benefits to be paid out by the pension plan.

The three employees—Joshua Knight, Michael Campbell and Ernest Fabrizio—joined the firm’s Personal Pension Plan prior to 1999 and selected various forms of joint and survivor annuities upon retirement. The original complaint, Joshua Knight et al. v. International Business Machines Corp. et al., was filed in the U.S. District Court for the Southern District of New York.

The employees alleged that IBM and IBM’s plan administrator committee violated the Employee Retirement Income Security Act’s actuarial equivalence and non-forfeitability rules by calculating employee benefits using an outdated mortality table, arguing that that it was “more than 40 years out of date, despite dramatic increases in longevity of the American public.”

The plaintiffs argued that if IBM had used more current actuarial assumptions—such as those referenced in regulations promoted by the Department of the Treasury—the plaintiffs’ benefit payments would have been larger.

IBM moved to dismiss the case, and the district court approved the dismissal on April 4. The plaintiffs filed a motion to appeal the dismissal on May 3.

IBM claimed in its motion to dismiss that the plaintiffs’ fiduciary breach claim was “untimely” under ERISA’s statute of limitations for such claims because the employees had “actual knowledge” of the alleged fiduciary breach—their pension protection statements disclosed the UP-1984 mortality table—more than three years before filing the initial complaint.

However, the DOL argued in an amicus brief filed in support of the plaintiffs on Tuesday that the district court did not make any factual findings as to whether the IBM employees were aware of the company’s use of the 1984 mortality table when they received their statements.

ERISA requires that plaintiffs filing a lawsuit for fiduciary violations do so within three years of obtaining “actual knowledge of the breach or violation.”

The district court held that the IBM employees had actual knowledge of the company’s breach upon receiving their pension projection statements, but the U.S. Supreme Court has stated that “disclosure alone” does not suffice for obtaining “actual knowledge” of the breach. As a result, the DOL argued in its brief, the court should reverse its decision.

“It is the height of speculation that any plaintiff, after receiving their statement, continued reading past the key information to find the technical notes, and understood their practical implications by referencing an earlier definition,” the brief stated.

The DOL also clarified that the projection statements are “merely pre-retirement estimates” of what the employees’ pensions were likely to be, not statements of how IBM determined the workers’ actual benefits.

“Because this case was dismissed on the pleadings, there is certainly no deposition testimony from any of the plaintiffs attesting that they even received their pension projection statements, let alone read them,” the DOL stated.

At minimum, the DOL argued, to determine if the complaint was filed before the statute of limitations expired, limited discovery regarding the employees’ knowledge of the mortality table is necessary to determine the point at which each employee had actual knowledge of the alleged fiduciary breach.

The DOL brief was submitted by Seema Nanda, solicitor of labor, Wayne Berry, associate solicitor of plan benefits security, and Jeffrey Hahn, counsel for appellate and special litigation. Sarah Holz is the trial attorney representing the DOL.