Sprint Used Outdated Mortality Data to Determine Retirement Benefits, Class Action Alleges [UPDATE]
Last Updated on December 14, 2023
Mcfadden v. Sprint Communications, LLC et al
Filed: November 11, 2022 ◆§ 2:22-cv-02464
A class action alleges Sprint has miscalculated joint and survivor annuity benefits for retirees and their beneficiaries.
Kansas
December 14, 2023 – Sprint Agrees to $3.5M Settlement Over Allegedly Miscalculated Retirement Benefits
The proposed class action detailed on this page has been settled for $3.5 million.
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The proposed settlement, which awaits preliminary approval from the court, will cover Sprint retirement pension plan participants and beneficiaries who began receiving a 50 percent, 75 percent or 100 percent joint and survivor annuity (JSA) or qualified pre-retirement survivor annuity (QPSA) on or after November 11, 2016, whose benefits had a present value less than that of the single life annuity (SLA) they were offered using the applicable Treasury Assumptions—that is, assumptions set by the Secretary of the Treasury based on current market rates and mortality assumptions—as of each participant’s benefit commencement date.
After the parties reached an agreement during a mediation session in September 2023, the plaintiffs filed a motion and attendant memo detailing the terms of the deal on November 29. The parties now await preliminary approval of the settlement terms from United States District Judge Daniel D. Crabtree.
According to the settlement agreement, the defendants will pay the $3.5 million value of the settlement fund in the form of a monthly benefit increase to be paid out over the lifetimes of class members or their designated beneficiaries. Shares of the settlement fund will be based on the value of an individual’s past and projected future pension benefit payments compared to the total value of all class members’ past and future benefits, the agreement relays. The plaintiffs’ 39-page memo notes that there are 1,009 total class members.
Per the memo, the increase in monthly benefits will begin after the proposed deal receives final approval from the court and will include a “lump sum equal to the sum of such increases in monthly payments due from January 1, 2024” until the first day of the first month that is at least 120 days after final approval.
The settlement agreement adds that to claim benefits for a deceased class member, the surviving plan participant or beneficiary will be required to submit an Estate Claim Form no later than six months after the date of the settlement’s final approval.
Notices will be sent by mail to class members no later than 40 days after the deal receives the court’s initial approval, the memo shares. With respect to deceased class members, the agreement states that a notice will be sent to the last address maintained in the defendants’ records.
ClassAction.org will update this page if and when the settlement receives preliminary approval.
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A proposed class action claims Sprint Communications and the carrier’s Employee Benefits Committee have used antiquated mortality data to calculate joint and survivor annuity (JSA) benefits, causing pension plan participants to receive lower vested monthly payments than they are entitled to under federal law.
The 32-page case alleges that Sprint has violated the Employee Retirement Income Security Act (ERISA) by failing to pay JSA benefits that are actuarially equivalent to single life annuity (SLA) benefits offered under the company's retirement pension plan.
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According to the complaint, the pension plan provides retirement benefits to individuals who were employed by Sprint and certain affiliated companies on or before August 10, 2005. The case explains that participants can earn monthly retirement benefits in the form of an SLA after they retire. Participants can also receive benefits in the form of a JSA or "an annuity for the participant's life with a contingent annuity payable to the participant's beneficiary (usually a spouse) for the life of the beneficiary," the suit states.
The retirement pension plan offers four JSA options:
“The 33 1/3% JSA pays the spouse one-third of the amount that was paid to the participant before the participant's death; the 50% JSA pays the spouse one-half; the 75% JSA pays the spouse three quarters; and a 100% JSA pays the same amount.”
Under ERISA, JSAs and qualified pre-retirement survivor annuities (QPSAs) between 50 and 100 percent must be at least the actuarial equivalent of the participant's SLA, the case asserts. The lawsuit explains that two benefit options are actuarially equivalent if they have the same present value, calculated using the same reasonable actuarial assumptions.
As the case tells it, Sprint determines the present value of these types of benefits by applying actuarial assumptions based on mortality tables and interest rates. When the two actuarial assumptions are calculated together, they generate a "conversion factor," which measures if two benefits are actuarially equivalent.
The complaint contends, however, that Sprint has calculated the present value of the JSAs in question using "antiquated, unreasonable" and "flawed" actuarial assumptions, including the "UP 1984 mortality table" (UP-84) with a seven-year setback for beneficiaries and a 6.5 percent interest rate.
"[T]he UP-84 is outdated and does not 'reflect anticipated events' (i.e., the anticipated mortality rates of participants). The UP-84 was published in 1976 and is based on data from the 1960s that does not incorporate improvements in life expectancy that have occurred since that time."
Additionally, the case argues that the seven-year setback, which subtracts seven years from the beneficiary's age on the mortality table to calculate benefits, is unreasonable because "the age difference between Plan participants and their spouses is typically less than 7 years and does not reflect participants' spouses' anticipated mortality when used with the UP-84."
By applying outdated and unreasonable actuarial assumptions to calculate participants' JSAs, Sprint generates "unfairly low" JSAs that are not actuarially equivalent to the SLA offered to participants, the filing claims. As a result, the complaint asserts, participants receive less than they should in monthly pension benefits.
The lawsuit looks to represent all participants in and beneficiaries of the Sprint retirement pension plan who began receiving a 50 percent, 75 percent or 100 percent JSA or a QPSA on or after November 11, 2016, whose benefits had a present value that was less than the present value of the SLA they were offered using the applicable Treasury Assumptions (assumptions set by the Secretary of the Treasury based on current market rates and mortality assumptions) as of each participant's benefit commencement date.
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