Court of Appeals Says Reasonable Assumptions Must Be Used for “Actuarial Equivalent” Calculation
On March 16, 2026, the Sixth Circuit Court of Appeals overturned the dismissal of two lawsuits in which participants claimed their pension plan violated the Employee Retirement Income Security Act of 1974 (ERISA) due to the use of “outdated” mortality assumptions to calculate their joint and survivor benefits. This alert discusses the lawsuits and the potential impact of the court’s opinion upon plans.
Background
ERISA and the Internal Revenue Code (Code) generally require defined benefit pension plans to provide a Qualified Joint and Survivor annuity (QJSA) to married participants unless the participant elects (with spousal consent) to receive another form of benefit. The definition of QJSA is “an annuity . . . for the life of the participant with a survivor annuity for the life of the spouse which is not less than 50 percent of (and is not greater than 100 percent of) the amount of the annuity which is payable during the joint lives of the participant and spouse,” and that is the “actuarial equivalent of a single life annuity for the life of the participant.”1
Neither ERISA nor the Code define “actuarial equivalent.” However, the IRS regulations under section 401(a)(11) of the Code state that equivalence may be applied on the basis of “reasonable actuarial factors.”2 The regulations do not further define reasonable actuarial factors.
Over the past few years there have been lawsuits in which participants challenged the use of “outdated” mortality tables used to determine their actuarially equivalent QJSA benefit and early retirement benefits. The participants called the mortality tables “outdated” because they were based upon data from the mid-1960s and did not reflect the mortality improvement that has occurred since that period.
There has not yet been any case that found a mortality table to be reasonable or not reasonable. Some of the cases were dismissed and others were settled after the district court denied a motion to dismiss the case. One reason for dismissal was that there was no use of the word “reasonable” in the statutory definition. Until now, a circuit court of appeals had not addressed any aspect of the issue.
The Sixth Circuit Cases
In two cases within the jurisdiction of the Sixth Circuit Court of Appeals, the district court granted the motion to dismiss the case. The basis for dismissal was that the law did not require that the actuarial equivalent calculation be based upon reasonable actuarial assumptions. Each case was appealed.
Reichert et al. v. Kellogg
Plaintiffs in the Reichert case are married retired employees who are participants in the Kellanova Pension Plan or the Bakery, Confectionary, Tobacco Workers and Grain Millers Pension Plans (collectively the “Kellogg Plans”). The Kellogg plans use the Uninsured Pensioners (UP) 1984 Mortality Table which is based on mortality data from the 1960s and 1970s. The participants claimed that the use of outdated mortality tables as part of the actuarial assumptions failed to provide them with QJSAs that were actuarially equivalent to the single life annuities provided by the Plans.
Watt et al. v. Fed Ex
Plaintiffs in the Watt case are married retired employees who are Participants in the FedEx Corporation Employees’ Pension Plans (the “FedEx Plan”). The FedEx plan uses the Uninsured Pensioners (UP) 1984 Mortality Table as well as the 1971 GAM Mortality Table which is based on mortality data from the 1960s. The participants claimed, similar to the Kellogg participants, that the FedEx Plan failed to provide them with QJSAs that were actuarially equivalent to the single life annuities provided by the Plan.
Sixth Circuit Decision
In a 2 to 1 decision, a three-judge panel in the Sixth Circuit held that “actuarial equivalence” is a “term of art”. After reviewing the actuarial literature, the majority concluded that ERISA prohibits the use of “unreasonably outdated” actuarial assumptions when calculating QJSAs. In finding that the participants plausibly alleged that the Kellogg and FedEx plans used unreasonable actuarial assumptions in calculating benefits, the majority reversed the district court dismissal and remanded each case to the relevant district court for further review.
The dissenting opinion takes issue with the majority inserting judicial logic into the interpretation of statutory text and supplanting the role of Congress in such a matter. The dissent finds no “reasonableness” requirement in ERISA related to the term “actuarial equivalence.” The minority opinion outlines how various provisions of ERISA and the Code require “reasonable” actuarial assumptions for minimum funding and other requirements although no reasonableness requirement is written into the QJSA provisions.
Cheiron Observations: Due in part to litigation pending in other Circuits3 and the lengthy dissent in the Sixth Circuit decision, the plans may seek to settle the cases or may request a re-hearing before the entire Sixth Circuit court of appeals (an “en banc” review). Even if the re-hearing request is not granted, the cases will still go back to the relevant district court for a determination of whether the actuarial assumptions are unreasonable. In the meantime, the holding by the Sixth Circuit may spur participants in other plans to bring similar cases. Note that the decision pertains only to the QJSA determination, and does not address early retirement calculations.
Ultimately, the impact of requiring plans to update their mortality tables will be to increase the amount of the QJSA benefits and increase the value of plan liabilities. The magnitude of any increase will depend on factors not addressed by the Sixth Circuit such as the impact of the statute of limitations. Plans may want to consider the potential cost of changing any assumptions so that older mortality tables are not used to determine the amount of benefits.
Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.
1 See ERISA section 205(d)(1) and Code section 417(b).
2 See section 1.401(a)-11(b)(2) of the Income Tax Regulations.
3 The 11th Circuit Court of Appeals is considering the same issue in a case before it titled Drummond v. Southern Co. Services Inc.