Colgate-Palmolive Co. agreed to pay a $332 million settlement to resolve a class action, containing allegations that its employee retirement income plan failed to pay certain participants the full value of pension benefits promised under a 2005 "residual annuity" plan amendment and federal pension law.
The settlement class consists of individuals identified as those who received lump sum payments under certain appendices of the plan but who are entitled to a greater benefit than their accrued benefit, and the beneficiaries, successors, or estates of such persons.
Class members are eligible for two types of monetary relief: an immediate lump sum payment to make up for missed prior annuity payments and future annuity payments if the participant or the spouse (as of the original payment date) is alive on August 01, 2025. The settlement administrator will calculate what the plan should have paid as an annuity retroactive to the original lump sum payment date, adjust for any prior annuity or retroactive payments around 2014, project the total forward with five percent annual interest, and then apply a pro rata reduction to reflect attorneys' fees, administration costs, and any service award.
A fairness hearing is scheduled for January 12, 2026, and the settlement administrator is expected to issue payments approximately 90 days after final approval and effectiveness of the settlement, assuming no appeals or other delays.
The underlying lawsuit contained allegations that, although a 2005 residual annuity amendment was intended to provide an additional annuity benefit to participants who received lump sums after July 01, 1989, the plan underpaid or failed to pay those residual annuities.
The defendant denied wrongdoing and chose settlement to resolve the litigation and provide relief to affected plan participants and related beneficiaries.
Source: https://www.claimdepot.com/settlements/colgate-pension-class-action
Commentary
The above loss centers on the management of a "residual annuity" plan. A residual annuity plan feature is designed to provide an additional annuity to participants who previously took a lump sum but later are found to have been underpaid relative to the annuity benefit promised under the pension plan and applicable law.
In other words, a residual annuity is "a fix" to a previous mistake, but in this matter the "fix" was incorrect, leading to a loss.
The concept sounds straightforward - true-up payments to prevent unlawful forfeitures - but in practice it requires complex actuarial calculations, layered plan amendments, and careful coordination with ERISA's actuarial equivalence and anti-forfeiture rules, which creates multiple points of failure.
When a residual annuity amendment is applied retroactively across many years, as in situations where a plan is correcting historic lump-sum underpayments back to an earlier effective date, the operational and documentation burdens increase substantially and magnify the risk of error.
The principal litigation risks arise from misinterpretation of the residual annuity amendment language, use of incorrect interest or mortality assumptions, and inconsistent application of the amendment across different participant groups.
Courts have scrutinized whether residual annuity formulas are applied exactly as written, whether pre-retirement mortality discounts or other actuarial adjustments impermissibly forfeit benefits, and whether internal committee resolutions or interpretations become binding plan terms that must be followed.
Failure to properly implement a residual annuity feature has already led to large-scale ERISA class actions, orders to recalculate benefits for hundreds or thousands of retirees, and nine-figure settlement exposure for sponsors whose calculations were found inconsistent with plan terms or ERISA requirements.
The final takeaway is that any sponsor using or contemplating a residual annuity feature should treat it as a high-risk benefit design. It requires meticulous drafting, actuarial modeling, ongoing compliance audits, and early legal review of calculation methodologies to reduce the chance of systemic underpayments that can later cause expensive class litigation and substantial corrective payments.
