Lumen Technologies latest company sued over a PRT deal with Athene
As private equity firms continue hunting pension risk transfer deals, corresponding lawsuits from aggrieved pensioners are increasing as well.
A lawsuit filed last week in Colorado accused Lumen Technologies of bypassing its fiduciary obligations to select the “safest annuity available” in favor of a lucrative PRT deal with Athene Life & Annuity.
Athene, a wholly owned subsidiary of Apollo Global Management, is not named as a defendant in the lawsuit.
Plaintiffs Dolly Dow and Virginia Sakal are suing Lumen, State Street Global Advisors Trust and others over the $1.4 billion PRT deal completed in October 2021. The deal affected 22,600 Lumen retirees and their beneficiaries, the complaint says, which include Dow and Sakal.
Plaintiffs depended on their retirement benefits growing in a plan covered under the Employee Retirement Income Security. Act of 1974, the complaint reads.
“By offloading Lumen’s pension obligations to Athene, Defendants caused Plaintiffs and similarly situated Lumen retirees and their beneficiaries to lose their status as ‘participants’ in the Plan,” the complaint says. “Therefore, Plaintiffs are no longer entitled to ERISA’s protections for employee retirement benefits.”
Nothing in ERISA prohibits an employer from transferring pension obligations to an insurance company. PRT deals are booming business for firms looking for capital to invest in a higher interest rate environment.
PRT deals keep rising
Total PRT premium was $26 billion in the first half of 2024, 14% higher than prior year results, according to LIMRA’s U.S. Group Annuity Risk Transfer Sales Survey. While second-quarter numbers were down, the number of contracts sold increased 10% year over year.
“Broad plan sponsor interest continues,” said Keith Golembiewski, assistant vice president, director of LIMRA Annuity Research. “LIMRA is forecasting strong PRT sales in the second half of 2024.”
PRT lawsuits are on the rise as well. AT&T, Lockheed Martin, and Alcoa each were hit, during March and April of this year, with class-action lawsuits challenging the transfer of pension plan liabilities to Athene.
Those transactions ranged from $2 billion to $9 billion, with tens of thousands of plan participants, court documents say.
The law firm Schlichter Bogard handled all of those lawsuits and is representing Dow and Sakal as well.
“Athene structures its annuities to generate higher expected returns and profits for itself and its affiliates by investing in lower-quality, higher-risk assets rather than in quality assets that would better support its future benefit obligations,” the new complaint reads. “In transferring Plaintiffs’ pension benefits to Athene, Defendants put Lumen retirees’ and their beneficiaries’ future retirement benefits at substantial risk of default without appropriate compensation.”
A Sept. 3 lawsuit filed in the Southern District of New York makes similar allegations against Bristol-Myers Squibb and State Street Global over a $2 billion PRT deal. Former Bristol Myers employee Charles Doherty is represented by law firms Edward Stone Law and Zuckerman Spaeder in that lawsuit.
‘Entirely baseless attempt’
Through the first half of 2024, Athene had completed 48 pension risk deals worth $52.3 billion, according to its website. The deals cover more than 550,000 plan participants, Athene notes.
Athene is the leading seller of annuities in recent LIMRA sales rankings.
A spokesperson for Athene released this statement:
“This complaint is an entirely baseless attempt by class action attorneys to enrich themselves at the expense of retirees.
“Every pension group annuity participant whose benefits have been guaranteed by Athene has received and will receive their promised benefits in full. In each pension group annuity transaction for which Athene has been selected, there has been a robust review process carried out by a fiduciary and their independent advisers who are experts at assessing insurer safety.
“Athene operates from a position of outstanding financial strength and is a safe and secure provider of annuity benefits. We are properly reserved, and have excellent capitalization and strong credit ratings, with a recent rating upgrade to A+ by AM Best.”
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