Colgate-Palmolive Company agreed to pay a $332 million settlement to resolve a long-running pension calculation dispute that dates back more than three decades.
The case, McCutcheon et al. v. Colgate-Palmolive Co. et al., was filed in the U.S. District Court for the Southern District of New York and involves claims by former employees alleging that the company miscalculated pension benefits under its retirement plan.
The dispute originated from Colgate's 1989 decision to convert its traditional defined benefit pension plan to a cash balance plan, a design resembling a defined contribution plan in which each participant receives a set percentage of annual pay plus interest, with individualized accounts maintained for each worker.
When the conversion occurred, participants received pension benefits as lump-sum payouts. Later, in 2005, Colgate retroactively offered annuity payments to those who had previously taken lump sums but allegedly did not receive their full earned benefits. The plaintiffs contended that these annuity values and lump-sum conversions were computed incorrectly, resulting in underpayments. Litigation began in 2007, and the complaint that led directly to the settlement was filed in 2016.
After years of legal proceedings and a prior 2020 district court ruling that had favored the plaintiffs, the case was headed toward a projected payout of roughly $300 million.
The final settlement amount of $332 million exceeds that estimate. Of the settlement funds, approximately $232.7 million will be distributed among 1,177 affected employees after attorneys' fees and other costs are deducted. The agreement was reached on June 05 and finalized in late August 2025, pending court approval.
As of the end of 2023, Colgate-Palmolive's Employees' Retirement Income Plan reported 8,410 participants and more than $1.4 billion in total assets. The resolution of this case closes one of the longest-running pension benefit miscalculation disputes involving a major U.S. corporation, originating from plan conversion policies that affected employee benefit calculations across decades.
Source: https://www.plansponsor.com/colgate-palmolive-settles-longstanding-pension-calculation-complaint-for-332m/
Commentary
The conclusion of Colgate-Palmolive's long-standing pension dispute underscores the complex risk landscape that corporate retirement plan sponsors face when altering traditional benefit structures.
When Colgate shifted from a defined benefit plan to a cash balance structure in 1989, it pursued a trend intended to stabilize long-term liabilities and mirror the growing popularity of defined contribution-style plans. However, the miscalculations in lump-sum and annuity benefits that followed illustrate that actuarial judgment, data integrity, and compliance with evolving benefit calculation rules are as critical as the structural change itself.
The prolonged litigation and eventual $332 million settlement reveal the compounding cost of operational missteps in benefit administration that may remain latent for years before discovery by participants or regulators.
From a loss prevention standpoint, the case illustrates that pension plan conversions introduce enduring legal and fiduciary risks despite being driven by legitimate cost-containment goals.
Errors in interest crediting, annuity equivalence factors, or lump-sum discount rates - especially when applied retroactively - can generate systemic underpayments that expose employers to ERISA-based lawsuits decades later. Pension plan adjustments must therefore be supported by documented actuarial assumptions, periodically audited valuation models, and robust participant communication protocols. Failure to transparently disclose how new formulas affect future accruals or distribution options amplifies the probability of litigation and can attract scrutiny under fiduciary breach claims.
