Belknap v. Partners Healthcare Sys., Inc., Civil Action No. 19-11437-FDS

588 F.Supp.3d 161

Scott BELKNAP, on behalf of himself and all others similarly situated, Plaintiff,

v.PARTNERS HEALTHCARE SYSTEM, INC. ; the Pension Management Committee; the Retirement Committee; and Jane/John Does 1-5, Defendants.

Civil Action No. 19-11437-FDS

United States District Court, D. Massachusetts.

Signed March 4, 2022

Alexandra L. Serber, Pro Hac Vice, Gregory Y. Porter, Pro Hac Vice, Bailey & Glasser LLP, Washington, DC, Douglas P. Needham, Mark P. Kindall, Pro Hac Vice, Robert A. Izard, Pro Hac Vice, Izard, Kindall & Raabe, West Hartford, CT, Mark G. Boyko, Pro Hac Vice, Bailey & Glasser LLP, St. Louis, MO, for Plaintiff.

Deborah S. Davidson, Pro Hac Vice, Morgan Lewis & Bockius LLP, Chicago, IL, Jeremy Blumenfeld, Pro Hac Vice, Morgan, Lewis & Bockius, LLP, Philadelphia, PA, Siobhan E. Mee, Keri L. Engelman, Morgan, Lewis & Bockius LLP, Boston, MA, Stephanie Rosel Reiss, Pro Hac Vice, Morgan, Lewis & Bockius LLP, Pittsburgh, PA, for Defendants.

MEMORANDUM AND ORDER ON DEFENDANTS’ MOTIONS TO DISMISS

SAYLOR, C.J.

This is a putative class action under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. Plaintiff Scott Belknap is a former employee of defendant Partners Healthcare System, Inc.¹ He retired early from Partners at age 62 and now receives a type of retirement benefit known as a joint and survivor annuity, which covers both him and his spouse.

Belknap has filed suit on behalf of himself and all others similarly situated, alleging that the way in which Partners calculates the value of his annuity violates ERISA. Specifically, he contends that under the relevant portion of ERISA, 29 U.S.C. § 1054(c)(3), the type of retirement benefit he receives (a joint and survivor annuity payable at age 62) must be the "actuarial equivalent" of a more typical retirement benefit (a single life annuity payable at age 65).² According to plaintiff, when determining whether the two types of benefits are actuarially equivalent, the underlying actuarial assumptions (the interest rate and the mortality tables) must be "reasonable." He contends that the actuarial assumptions used to determine his benefit were outdated, and thus unreasonable, and therefore Partners violated the protections of ERISA.

Partners has moved to dismiss the amended complaint under Fed. R. Civ. P. 12(b)(1) for lack of standing and Fed. R. Civ. P. 12(b)(6) for failure to state a claim. Pursuant to Fed. R. Civ. P. 12(d), the Court has converted the motion to dismiss for failure to state a claim to a motion for summary judgment.

For the following reasons, the motion to dismiss for lack of standing will be denied and the motion to dismiss for failure to state a claim, as converted to a motion for summary judgment, will be granted.

I. Background

The following facts are presented in the light most favorable to the non-moving party and are undisputed unless otherwise noted.

A. Factual Background

1. The Benefit Plans

Partners Healthcare System, Inc. was formed in 1994 as a non-profit corporation. It operates a health system that includes, among other facilities, Brigham and Women's Hospital and Massachusetts General Hospital ("MGH"). (Am. Compl. ¶ 16).

For more than 50 years, MGH operated a benefit plan to provide retirement income for eligible employees. (Id. ¶ 30). The plan has been amended periodically. (Id. ¶ 32). In 2016, the MGH plan was merged with other Partners benefit plans. (Id. ). Today, Partners administers the benefit plan (the "Plan"). (Id. ¶ 17).

Under the Plan, when a participant retires, he or she can receive benefits in one of several ways. (Id. ¶ 38). The normal retirement age under the Plan is 65. (See id. ¶¶ 3, 42; see also Dkt. No. 14, Ex. A ("Plan Document") § 5.1). The normal form of benefit is a single-life annuity ("SLA") based on the balance of a participant's account. (Am. Compl. ¶ 3).³ An SLA is a series of monthly payments that start when a participant retires and end when he or she dies. (See Plan Document § 5.1).

Participants can also receive a benefit in the form of a joint and survivor annuity. (Am. Compl. ¶ 38). A joint and survivor annuity ("JSA") is a series of monthly payments that start when a participant retires and end only when both the participant and his or her spouse have died. (See Plan Document § 11.3). If the participant dies before his or her spouse, the spouse will continue to receive monthly payments, but at a reduced portion of what the participant received while alive. (See id. ). A 50% JSA means that the surviving spouse receives 50% of the monthly benefit that the participant received while alive. (See id. ).

In addition, the Plan permits participants to retire early after attaining age 55 and collect early retirement benefits. (See Am. Compl. ¶ 36; Plan Document §§ 6.1, 6.2). Early retirement benefit options under the Plan include an SLA and a JSA, among other benefit forms. (Plan Document §§ 6.1, 6.2, 11.1).

2. Actuarial Equivalence Calculations

Under ERISA, a retirement benefit in the form of a JSA paid beginning at early retirement must be the "actuarial equivalent" of an SLA paid beginning at normal retirement age. See, e.g. , 29 U.S.C. § 1054(c)(3). The principal dispute here is whether the benefit paid by Partners to plaintiff is, in fact, actuarially equivalent to an age-65 SLA. (Am. Compl. ¶¶ 64-68).

According to the amended complaint, to calculate actuarial equivalence, the first step is to calculate the present value of the total future benefits that a participant would receive under both annuities. (Id. ¶¶ 42-44). There are two main inputs into the calculation of an annuity's present value: an interest rate and a mortality table. (Id. ¶ 44).

The interest rate is used to determine the present value of each future payment. That rate reflects the time value of money: the fact that money that is available now is worth more than the same amount available at some future date, because one can earn investment returns in the interim on money that is available now. (Id. ¶ 45).

A mortality table is a series of rates used to predict how many people of a certain age will survive to reach the next, higher age. (Id. ¶ 47). For example, one entry in a mortality table would describe how many 65-year-old people will survive to turn 66. Mortality tables are based not only on an individual's age, but also on his or her year of birth. (Id. ¶ 48). This is because, as a general matter, life expectancies have improved over time; the average 65-year-old person today can expect to live several years longer than the average 65-year-old person could expect to live as of (for example) the 1980s. (Id. ¶¶ 48-49).

According to the amended complaint, Partners uses typical and up-to-date actuarial assumptions when calculating the value of all benefit forms—SLA and non-SLAs alike—when preparing its financial statements. (Id. ¶¶ 54-61). Specifically, the complaint alleges that Partners uses (1) an interest rate that accurately reflects market conditions and (2) an updated mortality table from 2000 that is projected forward to 2014. (Id. ).

However, Partners uses different interest rates and mortality tables to calculate the actuarial equivalence of non-SLAs for other purposes. (Id. ¶¶ 64-67). For example, when paying out benefits, the amended complaint alleges that Partners uses different inputs to calculate actuarial equivalence for non-SLAs. (Id. ¶¶ 62-68). Specifically, the amended complaint alleges that Partners uses (1) an interest rate of 7.5% and (2) a "1951 Group Annuity Mortality Table projected to the 1960 Mortality Table, set back two years for participants, and set back three years for beneficiaries" ("the 1951 Adjusted Mortality Table"). (Id. ).

According to the amended complaint, using the 1951 Adjusted Mortality Table is unreasonable because it is "not based on a population with ‘characteristics that are typical of the [Plan's] participants.’ " (Id. ¶ 64) (quoting McDaniel v. Chevron Corp. , 203 F.3d 1099, 1110 (9th Cir. 2000) ). The amended complaint alleges that because of this unreasonable input, participants who receive non-SLAs calculated using the 1951 Adjusted Mortality Table do not receive benefits that are actuarially equivalent to SLAs. (Id. ¶ 65, 68).

The language of the Plan is essentially consistent with those allegations. As required by ERISA, the Plan provides that [non-SLAs] must be actuarially equivalent to [SLAs]. (Plan Document §§ 1.1, 1.3). The Plan defines "actuarial(ly) equivalent(ce) as "a benefit of equivalent value to the Accrued Benefit [for present purposes, a benefit payable as an SLA] determined on the basis of the assumptions described in the Appendix A to the Plan." (Plan Document, § 1.3). The relevant assumptions include, for present purposes, an interest rate of 7.5% and the 1951 Adjusted Mortality Table. (Plan Document, Appendix A, §§ A1.4, A2.5).

3. Belknap's Employment and Retirement

Scott Belknap is a participant in one of the retirement plans of Partners. (Id. ¶ 15). He worked for Massachusetts General Hospital until he retired in 2016 at the age of 62 and 3 months—that is, before his plan's normal retirement age of 65. (Id. ). He receives a 50% JSA from Partners, which pays $787.94 each month. (Id. ¶¶ 15, 74). He alleges that Partners has reduced the value of his annuity, compared to how he says it should be calculated, by calculating it using a 7.5% interest rate and the 1951 Adjusted Mortality Table. (Id. ¶ 74). Specifically, he alleges that if Partners used the 3.7% interest rate that it used to calculate its financial statements for the year ending September 30, 2016, and the mortality table applicable in 2016 that was provided by the United States Treasury Department, his annuity payout would increase to $821.42—a monthly difference of $33.48. (Id. ). Partners’ method of calculating actuarial equivalence, he alleges, has reduced the present value of his benefits at the time of his retirement by $5,841.51. (Id. ).

B. Procedural Background

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