Pension Rights Center: PRT deals could lead to ‘nationwide catastrophe’ regulated
The continued transfer of pension funds to annuity sellers threatens the viability of the American retirement system if left unchecked, the Pension Rights Center said in an amicus brief filed last week.
A nonprofit consumer advocacy organization established in 1976, the PRC intervened in a Massachusetts lawsuit filed by AT&T retirees.
The lawsuit is one to two accusing AT&T and its independent fiduciary, State Street Global Advisors Trust Co., of taking on too much risk when it selected Athene Annuity and Life Co. to conduct its $8.05 billion pension risk transfer in May 2023.
The lawsuits were consolidated in an amended complaint filed in November. Nearly 100,000 former AT&T employees are relying on the company pension fund for their retirement, the lawsuit states.
“Although AT&T is worth more than $100 billion, and is the world’s fourth-largest telecommunications company, the company decided to fatten its wallet by dispensing over $8 billion of pension benefits to [Athene],” the lawsuit says, “a private-equity-controlled insurance company that is dependent on its Bermuda-based subsidiary and which has an asset base far riskier than AT&T’s and traditional annuity providers.”
AT&T: We’re not the fiduciaries
The Employee Retirement Income Security Act (ERISA) is a federal law that sets minimum standards for most private-sector retirement and health plans. Plaintiffs and the PRC claim that ERISA requires plan sponsors to select “the safest possible annuity” when making pension risk transfer deals.
In a motion to dismiss the lawsuit, AT&T distanced itself from any fiduciary duty, claiming that it hired State Street Global Advisors to make the deal with Athene. At any rate, the defendant argued, plaintiffs have no case because their annuities have not failed.
“Plaintiffs have not suffered any actual, cognizable injury or imminent threat of harm,” AT&T attorneys say. “They cannot and do not allege that they have been denied even a penny of their pension benefits to date, or that the terms of the annuities are insufficient to replace every penny of their future pension entitlements. And while Plaintiffs allege that Athene might default on its obligations at some unknown point in the future if it does a poor job of managing its assets, this allegation is far too speculative” to carry a lawsuit.
Judge Nathaniel M. Gorton declared the motion to dismiss moot on Jan. 8 in light of the amended, consolidated lawsuit. But the Pension Rights Center seized on the AT&T claims as evidence of flaws in the system.
“We believe the fiduciary process that resulted in the selection of Athene falls short of a process designed to select the safest available annuity, but also because the position taken by Defendants—that the allegations that Defendants failed to prudently select an annuity in the sole interest of the participants cannot be tested in court so long as the annuity provider has not yet failed—could ultimately lead to a nationwide catastrophe for retirees.”
PRT deals continue
PRT deals have become big business in recent years, as companies look to offload hefty pension commitments. Meanwhile, insurers and private equity firms seek the chance to invest and reap fees from large pots of pension funds.
In 2023, PRT deals surged to a record 773. But pensioners say they are caught in the middle and unprotected. Since the start of 2023, Lockheed Martin, GE and Alcoa have been sued by employees in class action lawsuits. Most recently, a group of former Verizon employees sued the company after a PRT deal with Prudential.
PRT participants are not without their defenders. In November, the ERISA Industry Committee composed a brief supporting General Electric’s motion to dismiss a lawsuit involving its PRT deal with Athene.
“While Plaintiffs suggest that an insurance-backed annuity is somehow riskier for them
than an ERISA plan is, insurance regulations generally hold insurance companies to stricter
financial standards and more intensive oversight than are applied by pension regulations to
single-employer pension plans and pension plans have far higher failure rates than insurers,” the brief says.
The ERISA Industry Committee is a trade group representing employers. Its members are generally companies with more than 10,000 employees.
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