The Legal Battleground of Pension Risk Transfers (PRTs) with Private Equity Backing
There is a developing trend of legal action against pension providers concerning pension transfers. Let's break down the key points:
The Issue: Lawsuits are emerging against companies like AT&T and Lockheed Martin for transferring pension liabilities to Athene, a private equity-backed insurer.
The Accusation: Plaintiffs allege that:
Athene prioritizes high-risk investments for higher returns, potentially jeopardizing retirees' benefits.
They charge lower fees to win contracts but may not be as financially secure as traditional insurers.
A significant portion of Athene's PRT liabilities are reinsured offshore, raising concerns about transparency and stability.
The Concern: Regulators and some legal arguments focus on whether providers are giving adequate guidance on the risks involved in giving up the security of a DB pension.
The Legal Action: We're seeing lawsuits against providers, alleging they breached their fiduciary duty by not prioritizing the safety of the pension holder's retirement income by:
Not properly explaining the risks of transferring out of a DB plan.
Choosing riskier options for transferring the pension benefits.
The Defense: Lockheed Martin has declined to comment on pending litigation.
The Regulation: The Department of Labor's Interpretative Bulletin 95-1 (IB 95-1) outlines criteria for selecting "safest available annuities" for PRTs. These criteria include the insurer's financial strength, investment strategy, and guarantee structures. The DOL is considering revisions to IB 95-1, which could impact future PRT practices.
Additional Points:
The lawsuits highlight the growing scrutiny of private equity ownership in the insurance industry, particularly regarding risk management and long-term stability for policyholders.
The legal arguments center on whether companies like AT&T and Lockheed Martin breached their fiduciary duty by prioritizing lower costs over the safety of pension benefits.
The outcome of these lawsuits could set precedents for future PRTs and influence the DOL's final amendments to IB 95-1.
Here's what we know about the second lawsuit filed against AT&T's 2023 Pension Risk Transfer (PRT) deal with Athene:
Focus of the Lawsuit: Similar to the first lawsuit, this one again challenges the selection of Athene as the insurer for the PRT deal.
Plaintiffs: Three former participants of the AT&T Pension Benefit Plan – Catherine Schloss, Patricia Tate-Jackson, and Darlene Wilson – are suing AT&T and State Street Global Advisors (the plan's independent fiduciary) on behalf of themselves and potentially other affected participants.
Accusations: The lawsuit alleges that AT&T and State Street violated their obligations under the Employee Retirement Income Security Act (ERISA) by not securing the "safest annuity available" for plan participants. They argue that Athene is a risky insurer due to:
Being a "risky new insurance company."
Dependence on a Bermuda-based subsidiary.
Having an asset base "far riskier than AT&T's."
Desired Outcome: The lawsuit likely seeks to:
Force AT&T to revisit the PRT deal and potentially secure a different insurer.
Obtain compensation for any losses suffered by plan participants due to the alleged risky transfer.
Additional Points:
This lawsuit was filed just days after another group of former participants sued AT&T over the same PRT deal.
The selection of Athene and the potential risks associated with it seem to be the central arguments in both lawsuits.
Further Resources:
You can find more details about the lawsuit in news articles like the one you mentioned: "2nd Suit Filed Against AT&T's 2023 PRT Deal" AI-CIO website: link to article without URL.
To understand ERISA regulations, you can visit the Department of Labor's website: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/erisa
It's important to note that these are just allegations in a lawsuit, and the court will ultimately decide the merits of the case.
