Law-of-the-Case Governs ERISA Residual Annuity Calculations: Pre-Retirement Mortality Discounts and Uniform 20+1% Projection Rate Required

Introduction

McCutcheon v. Colgate-Palmolive Co. is the latest chapter in nearly a decade of ERISA litigation in the Southern District of New York. Plaintiffs-Appellees Rebecca McCutcheon and Paul Caufield, on behalf of themselves and a class of former Colgate-Palmolive employees, challenged the administration of their retirement plan under the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. At issue were two discrete aspects of the “Residual Annuity” amendment added in 2005 to a plan originally overhauled in 1994:

• Whether a pre-retirement mortality discount (PRMD) could lawfully reduce residual annuity benefits for members who took their benefit before age 65;
• Whether employee‐paid contributions retained to preserve “grandfathered” annuities could be projected using a rate different from the employer’s 20+1% rate when converting a cash balance to a life annuity at age 65.

Defendants-Appellants Colgate-Palmolive Co., its Employee Retirement Income Plan, and plan administrators appealed the district court’s amended judgment implementing the Second Circuit’s prior mandate (McCutcheon II, 62 F.4th 674 (2d Cir. 2023)). The Court of Appeals, in a summary order, affirmed.

Summary of the Judgment

On April 4, 2025, the Second Circuit issued a summary order affirming the district court’s post-mandate judgment. The appellate court held:

1. No Pre-Retirement Mortality Discount: Defendants may not apply a PRMD to residual annuity benefits paid prior to age 65. This issue was encompassed by “Error 3” in the pleadings, fully litigated in both McCutcheon I and II, and thus barred from reconsideration under the law-of-the-case doctrine.
2. Uniform 20+1% Projection Rate: Both the employer-funded PRA cash balance and employee contributions retained under Appendix C must be projected forward using the 20+1% interest rate when converting the account to an annuity at age 65. Defendants’ belated attempt to assign a lower rate to employee contributions was likewise foreclosed by the mandate rule.

The Court emphasized that once an appellate court decides an issue, the district court “is under a duty to follow the appellate court’s ruling,” and it “may not reopen” issues that were ripe on the initial appeal (Havlish v. 650 Fifth Ave. Co., 934 F.3d 174 (2d Cir. 2019); Callahan v. County of Suffolk, 96 F.4th 362 (2d Cir. 2024)).

Analysis

Precedents Cited

• McCutcheon I (481 F. Supp. 3d 252 (S.D.N.Y. 2020)) – District court’s initial summary judgment ruling on “Error 3,” denying PRMD usage.
• McCutcheon II (62 F.4th 674 (2d Cir. 2023)) – Affirmed McCutcheon I on Error 3 and projection‐rate issues.
• Havlish v. 650 Fifth Ave. Co. (934 F.3d 174 (2d Cir. 2019)) – Law-of-the-case bars re-litigation of issues ripe on initial appeal.
• Callahan v. County of Suffolk (96 F.4th 362 (2d Cir. 2024)) – Trial court must implement an appellate mandate faithfully; appellate review of mandate implementation is de novo.

Legal Reasoning

1. Law-of-the-Case Doctrine
The Court applied the mandate rule to both contested issues. Defendants had failed to distinguish the two mortality-discount calculations in the first appeal and never challenged the projection rate for employee contributions until after McCutcheon II. Because both points were “ripe for review,” they became settled law once the Second Circuit issued its decision in McCutcheon II.

2. Plan Interpretation
• Section 1.3 of the Plan mandates the 20+1% rate “for purposes of converting a Member’s Account into a[n] annuity.”
• “Error 3” in the complaint encompassed both the actuarial equivalent calculation and the early-retirement adjustment. Plaintiffs’ unopposed motion in McCutcheon I and Defendants’ failure to brief a separate analysis foreclosed any re-argument.

Impact

• Reinforces finality in ERISA litigation: plan administrators must raise all arguments at the appellate stage or risk preclusion.
• Clarifies that residual annuities cannot be reduced by mortality discounts when the benefits at issue are guaranteed once payable.
• Requires uniform projection rates for cash‐balance and employee contributions under Appendix C, ensuring parity in annuity conversions.
• Signals to practitioners that summary orders, while non-precedential, can establish binding law-of-the-case rules.

Complex Concepts Simplified

• Pre-Retirement Mortality Discount (PRMD): An actuarial reduction applied because a retiree might die before reaching normal retirement age. Here, applying a PRMD would unlawfully reduce a guaranteed benefit.
• Projection Rate: The assumed rate of return used to grow hypothetical retirement account balances (employer and employee contributions) until they convert to an annuity at age 65. The Plan prescribes a single rate: 20-year Treasury yield + 1%.
• Actuarial Equivalent: A lump-sum payment equal in value to a lifetime annuity, calculated using mortality and interest assumptions.
• Law-of-the-Case Rule: Once an appellate court decides an issue, lower courts and parties are bound by that decision in later stages of the same case.

Conclusion

The Second Circuit’s summary order in McCutcheon v. Colgate-Palmolive Co. underscores two core principles:

• The law-of-the-case doctrine ensures finality by prohibiting re-litigation of issues fully considered and decided on initial appeal.
• ERISA plan provisions governing residual annuities must be applied as written: no pre-retirement mortality discount may be used, and a uniform 20+1% projection rate governs all components of the benefit calculation.

This decision provides clear guidance for plan administrators and litigants alike: raise all arguments promptly, adhere to the plan’s express terms, and respect the binding effect of appellate decisions in subsequent proceedings.