2nd Circ. Will not Undo Colgate’s $300M Loss in ERISA Suit

The U.S. Court of Appeals for the Second Circuit upheld an August 2020 grant of partial summary judgment in favor of ex-workers in a class action suit against Colgate-Palmolive. The former workers claimed that the company paid them lower benefits than they were entitled to when they received lump-sum retirement payouts.

The three-judge panel of the Second Circuit agreed that the provisions of Colgate’s retirement plan at issue had an unambiguous meaning that entitled the former workers to greater retirement benefits. The case is Rebecca McCutcheon et al. v. Colgate-Palmolive Co. et al., case number 20-3225, U.S. Court of Appeals for the Second Circuit.

According to the panel, the district court properly ruled that Colgate violated ERISA in misinterpreting a 2005 residual annuity amendment (RAA) to the plan to use two different interest rates when converting benefits to a lump sum distribution or residual annuity. The panel rejected Colgate’s interpretation of the RAA as an unreasonable construction of the plan’s text.

The panel upheld the district court’s ruling that the plan had to use specific rates in calculating the annuity payout’s value. It also rejected Colgate’s claim that it could retroactively determine which interest rates to use in making the annuity payout value calculations.

Finally, the panel affirmed the district court’s grant of summary judgment in favor of the plan participants’ claim that using a pre-retirement mortality discount (PRMD) violated ERISA. The use of the PRMD was a violation, even though the plan specifically required its use. The Court found it was improper to use a PRMD to discount the present value of a future annuity when a plan guarantees survivor benefits substantially similar to a member’s accrued benefit. In its findings, the Court rejected Colgate’s argument that a 2016 proposed IRS rule rejected the Court’s approach in using an “unlawful PRMD” in this context, pointing out that the proposed rule was unclear, and, in any case, the IRS never adopted the rule.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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