Howard University $1.3 Million Pension Settlement Highlights Key ERISA Issues

Howard University has agreed to a $1.3 million settlement to resolve claims of underpaid pension benefits to nearly 1,800 retirees.

This settlement, awaiting final court approval, addresses a lawsuit under the Employment Retirement Income Security Act (ERISA). The federal court in Washington, D.C., has preliminarily approved the legal resolution, which illustrates the complexities of actuarial assumptions in pension plans. At the lawsuit's core is the calculation method used by Howard's Employees' Retirement Plan, created in 1976 and frozen in 2010. The plan's use of outdated mortality tables and interest rates resulted in discrepancies between single life annuities and joint and survivor annuities, impacting retirees financially.

Understanding Actuarial Equivalence

To comply with ERISA, pension calculations should reflect actuarial equivalence—keeping the value consistent regardless of the method of distribution. However, assumptions used in Howard's plan, specifically the 1984 Unisex Pension Mortality Table and a 7% interest rate, were challenged as outdated. The lead plaintiff, a long-serving employee who retired at 70, experienced a lower monthly annuity compared to what current assumptions would provide, highlighting the broader issue affecting 1,788 participants.

Settlement Details

The structured payout from the $1.3 million settlement is designed to adjust for the alleged underpayments. Participants whose pension payments commenced on or after August 17, 2017, will receive 75% of the settlement based on their underpayment estimates. Those with earlier payments will share the remaining 25%, aligned with their current benefits. Payment adjustments and a lump sum covering the period from final settlement approval to implementation are expected within 150 days post-approval.

Industry Implications

This case highlights the critical nature of reviewing and updating legacy assumptions in pension plans, such as interest rates and mortality tables that may no longer be adequate. Legal views on actuarial equivalence under ERISA vary across federal circuits, which leaves this area of pension law open to interpretation. Pursuing trials in such cases can incur expenses for both plaintiffs and companies, often necessitating expert testimony.

The eventual settlement underscores a cautionary tale for benefits administrators and compliance teams in retirement plan management. To avoid similar litigations, actively reassessing assumptions is key. As the settlement moves towards a fairness hearing on December 18, 2026, participants can still raise objections, keeping the case active until judicial endorsement.