Diego M. Radzinschi/ALM
AT&T filed a motion last week to dismiss two lawsuits alleging the company, as well as State Street Global Advisors Trust Co., selected a "risky" insurer, Athene Annuity and Life Company, to conduct its $8.05 billion pension risk transfer in May 2023, offloading the pensions of 96,000 of its plan participants.
The lawsuits, filed by retirees, claim Athene was an unsafe choice under Employee Retirement Income Security Act fiduciary standards and placed its retirees in danger. AT&T contends it did not make the fiduciary decision, which was handled by SSGA, and argues the plaintiffs have not demonstrated any actual harm or imminent threat that can be challenged in court. AT&T was not acting as a fiduciary under the statute in connection with the transaction, they said in court filings, however, the deal secured AT&T more than $9.6 million annually, according to the complaint.
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This lawsuits are representative of a new line of retirement plan litigation that has targeted several major employers, including Lockheed Martin and Alcoa, over pension risk transfers. All three companies selected Athene as the provider of the pension risk transfer; however, Athene has not been named in any of these cases. Athene ended 2023 with group annuity sales of $10.4 billion.
Rising interest rates are driving companies to offload retirement plan liabilities to annuity providers via pension risk transfer. In the first quarter of 2024, there were double the amount of pension risk transfers totaling $14.6 billion, 130% higher than the first quarter of 2023, according to LIMRA's U.S. Group Annuity Risk Transfer Sales Survey.
Amid this flurry of PRT deals and the resulting high-profile lawsuits, it's expected that the Department of Labor will issue a report that could target group annuity contracts by pension plans in pension risk transfer transactions. However, the American Council for Life Insurers is concerned the report "might criticize the annuitization process," said Preston Rutledge, consultant to ACLI and former assistant secretary of labor for ERISA.
Related: Retiring the pension plan: A PRT's pivotal role in the evolution of retirement plans
There is fear that the DOL report "could have a chilling effect on the pension risk transfer marketplace," said Howard Bard, senior vice president and deputy general counsel for the American Council of Life Insurers. "That is, limiting employers' ability to shift unknown future liability away from themselves and into an insurance company that specializes in long-term risk management."
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
