August 19, 2015
- Council Voices Support for Retirement Plan Administrator in Request for Supreme Court Hearing
- Council Letter Urges Use of Social Security Data in Updated 2016 Static Mortality Tables for Pension Plans
Council Voices Support for Retirement Plan Administrator in Request for Supreme Court Hearing
In an amicus (“friend of the court”) brief, filed on August 14 in the case United Refining Company v. Cottillion, the Council urged the United States Supreme Court to grant United Refining’s petition for a Writ of Certiorari to hear the case in the upcoming term. The request results from the March 18 U.S. Court of Appeals for the Third Circuit ruling for a class of plaintiffs in Cottillion v. United Refining Company. The Council also filed an amicus brief with the Third Circuit in June2014.
This case involves the attempted recovery of pension plan distributions erroneously paid through a misinterpretation of plan documents that was subsequently corrected. When the plan attempted to recover the overpayments to maintain qualified status after a Voluntary Correction Program (VCP) filing with the Internal Revenue Service, the plaintiffs sued, alleging the company violated ERISA's anti-cutback provisions by seeking to retroactively reduce accrued early retirement benefits. The U.S. District Court for the Western District of Pennsylvania also found in favor of the plaintiffs, including remedy awards. A summary of the Third Circuit’s ruling is available in the March 19 Benefits Byte.
The Council’s brief to the Supreme Court notes that under the law of the Second, Seventh, Ninth and D.C. Circuits, employers may offer their employees retirement benefits without assuming the risk that mistakes by the plan administrator will be irreversible. In the Third and Sixth Circuits, however, an employer who chooses to offer retirement benefits can become bound—in perpetuity—to a plan administrator’s mistaken interpretation. Employers offering retirement programs extending across multiple circuits face substantial uncertainty as to the governing law. Further, any employer subject to Third or Sixth Circuit jurisdiction is exposed to an interpretation of ERISA conflicting with the basic tenets of how retirement plans are created and administered. The Council believes the Third Circuit’s decision in United Refining was based on a misunderstanding of the distinct roles of the employer plan sponsor and the benefit program’s administrator, who owes a fiduciary duty to plan participants. Making the administrator’s interpretive mistakes irreversible not only imposes a wholly unpredictable risk on employers, but constrains the administrator’s ability to make routine financial management decisions and limits the ability to act in the best interests of plan beneficiaries.
The brief also notes that the effect of the Third Circuit’s decision—both in its contribution to deepening an existing circuit split, and in its adoption of an untenable rule—is extremely troubling to employers. If offering voluntary benefits such as retirement plans exposes an employer to such uncertainty and unpredictable liability, it may have to cease offering such benefits, or may opt not to implement new programs in the future.
For more information on this issue or the Council's amicus brief program, contact Jan Jacobson, senior counsel, retirement policy, or Lynn Dudley, senior vice president, global retirement and compensation policy. Both can be reached at (202) 289-6700.
Council Letter Urges Use of Social Security Data in Updated 2016 Static Mortality Tables for Pension Plans
On August 17, the Council sent a letter to officials at the Treasury Department and Internal Revenue Service (IRS)thanking them for the issuance of Notice 2015-53and urging the consideration of recently released 2011 data from the Social Security Administration (SSA) and the Centers for Disease Control (CDC) in developing mortality tables to be used for purposes of calculating pension funding requirements, benefit restrictions, lump-sum calculations, Pension Benefit Guaranty Corporation (PBGC) premium payments, and other related purposes. Notice 2015-53 (as detailed in the August 3 Benefits Byte) provides much needed guidance for plan years starting in 2016. The Notice also makes it clear that updating the Applicable Mortality Table in light of the RP-2014 Mortality Report and the Mortality Improvement Scale MP-2014 Report by the Society of Actuaries will be done through the notice and comment process as the Council urged in March.
While the Council’s letter supports Notice 2015-53’s outlined administrative process for adapting to the new mortality tables, our letter also reiterates the Council’s concern regarding projections of mortality improvements between 2006 and 2014, which helped form the basis for the RP-2014 tables. The core issue previously was whether the projections are appropriate in light of actual mortality experience for 2007-2010, as reported by the SSA, and data for 2011-2013 produced by the CDC and the Human Mortality Database (HMD). Government officials expressed concern about reliance on the CDC and HMD data due to possible quality issues. As pointed out by our letter, the SSA’s recent announcement of 2011 actual improvements, however, verified the CDC data’s accuracy and found that mortality improved by 1.1 percent (i.e., the reduction in the central death rate) -- far below the previous projection by the SSA of 2.2 percent.
Even though the experience during one year should not be relied on and mortality rates will vary, the Council’s letter also contended that the 2011 SSA data marks a continued pattern of actual annual improvement during the 2007-2011 period of just over 1 percent, as contrasted with SOA’s “projections” for the same period of more than 2 percent for most ages in the retirement years. We asked Treasury and IRS to take actual experience into account with regard to mortality guidance rather than relying more heavily on the Society of Actuaries’ projections, especially since SSA’s data (based on the entire population of over 316 million estimated lives) is far more extensive than the Society of Actuaries’ pension plan population data of fewer than 11 million lives.
The Council will prepare additional comments and work with key policymakers as is appropriate. For more information, contact Diann Howland, vice president, legislative affairs, Jan Jacobson, senior counsel, retirement policy, or Lynn Dudley, senior vice president, global retirement and compensation policy. All can be reached at (202) 289-6700.