In Stephens v. US Airways Group, Inc., No. 10-7100 (D.C. Circ. 2011), the plaintiffs are retired U.S. Airways pilots. Each received a pension from the U.S. Airways pension plan (“the Plan”), and had elected to receive his pension in the form of a single lump sum payment rather than as an annuity. In accordance with the terms of the Plan, those lump sums were paid by the Plan 45 days later than the plaintiffs would have received their first checks, had they chosen the annuity option. The plaintiffs sued U.S. Airways, claiming the Plan owed them interest for its 45-day delay. The district court disagreed, and the plaintiffs appealed. The question: are the plaintiffs entitled to the interest?
The plaintiffs claimed that, unless the interest for the 45-day period is paid, the lump sum amounts they received were worth less than the annuities they could have elected, violating the actuarial equivalence requirement of section 204(c)(3) of ERISA. Here, the lump sums were calculated to be the actuarial equivalent of the annuities, as of the date on which payment of the annuities would have begun. This meets section 204(c)(3). IRS regulations do allow a reasonable delay in making the lump sum payments. 26 C.F.R. § 1.401(a)-20 (Question & Answer 10(b)(3)).
The issue becomes whether the 45-day delay in making the lump sum payments in this case was reasonable. The Court concluded that it was not. The 45-day delay appears unrelated to the time needed administratively to calculate and pay out the lump sums. Further, the plaintiffs’ expert provided evidence that, in practice, pension plans deem delays of 30 days or less–not 45 days–as “reasonable.” Thus, the plaintiffs are entitled to interest. How much? The Court remanded the case back to the district court to make this determination.