RiskOctober 17, 2019

AT&T Plan Members Sue Over Early Retirement Calculations

Complaint says media giant shortchanged participants who retired early.

Reported by Michael Katz

Vested participants of AT&T Inc.’s defined benefit pension plan have filed a lawsuit against the media giant, saying that the way early retirement benefits were calculated shortchanges its members and violates the Employee Retirement Income Security Act (ERISA).

The complaint claims that the vested participants in the AT&T Plan have been denied their full ERISA-protected pension benefits and have been “forced to forfeit” accrued, vested pension benefits if they retire before age 65 and/or receive their pension benefit in the form of a joint and survivor annuity.

The plaintiffs said the plan’s terms reduce alternative forms of benefits using “early retirement factors” and “joint and survivor annuity factors” resulting in plan participants receiving less than the actuarial equivalent of their vested accrued benefit, as required by ERISA.

In an emailed response to the lawsuit, an AT&T spokesperson said that “we’re recognized for offering highly competitive wages and benefits. We’re proud to provide defined benefit pension plans for most employees, and 401(k) savings plans with generous matches, and our pension plans comply with ERISA.”

One of the plaintiffs, Amy Eliason of Duluth, Minnesota, worked for AT&T Inc. or its predecessors from approximately 1975 until 1991, and participates in the AT&T Legacy Bargained Program of the Plan. In June, one month past her 63^rd birthday, she elected to receive a lump sum payment as an early retirement benefit. According to the complaint, because an early retirement factor was applied in determining her lump sum benefit, Eliason will receive less than the actuarial equivalent of a single life annuity taken at normal retirement age.

“ERISA requires that if a plan allows a participant to retire early with a reduced monthly pension, the value of their reduced monthly pension must be actuarially equivalent to the participant’s monthly pension benefit commencing at age 65,” the complaint said.

For example, the plaintiffs said that under most programs of the AT&T plan, if a participant’s normal pension benefit beginning at age 65 is $10,000 per month, but retires at age 60, the monthly benefit is reduced by a factor of 0.58. As a result, the value of the monthly benefit is 58% of $10,000, or $5,800 per month. However, the plaintiffs argue that the actuarial equivalent benefit she is entitled to receive under ERISA is approximately $7,090 per month.

AT&T is n also alleged to have improperly reduced pension benefits involving a joint and survivor annuity, which it said under the plan’s terms does not provide participants with the actuarial equivalent of their vested, accrued pension benefit.

For example, if a married participant’s single life annuity benefit is $10,000 per month the default form of benefit is a 50% joint and survivor annuity, which is reduced by a factor of 0.90 for most programs under the plan As a result, the participant’s monthly benefit is 90% of $10,000 per month, or $9,000 per month, when the actuarial equivalent benefit is approximately $9,200 per month.

“Put simply, if a participant retires before age 65 … then her alternative form of benefit beginning at the age she retires must be the actuarial equivalent of her single life annuity benefit beginning at age 65,” said the complaint. “Nonetheless, the early retirement factors and the joint and survivor annuity factors set forth in the plan reduce participant benefits below their actuarial equivalent value and thus violate ERISA’s statutory requirement of actuarial equivalence.”