As private equity firms increasingly pursue pension risk transfer (PRT) deals, the number of lawsuits from disgruntled pensioners is also rising.
Last week, a lawsuit was filed in Colorado accusing Lumen Technologies of neglecting its fiduciary duty to choose the “safest annuity available” in favor of a lucrative PRT arrangement with Athene Life & Annuity.
Athene, a subsidiary of Apollo Global Management, is not named as a defendant in the suit.
Plaintiffs Dolly Dow and Virginia Sakal are suing Lumen, State Street Global Advisors Trust, and others over a $1.4 billion PRT deal finalized in October 2021. This deal impacted 22,600 Lumen retirees and their beneficiaries, including Dow and Sakal.
According to the complaint, the plaintiffs relied on their retirement benefits under the Employee Retirement Income Security Act (ERISA) of 1974.
The lawsuit claims, “By transferring Lumen’s pension obligations to Athene, the Defendants caused Plaintiffs and similarly situated Lumen retirees and their beneficiaries to lose their status as ‘participants’ in the Plan. As a result, Plaintiffs no longer have ERISA’s protections for employee retirement benefits.”
ERISA does not prohibit employers from transferring pension obligations to insurance companies. PRT deals are increasingly popular as firms seek capital to invest in a high-interest-rate environment.
According to LIMRA’s U.S. Group Annuity Risk Transfer Sales Survey, total PRT premiums reached $26 billion in the first half of 2024, a 14% increase from the previous year. Despite a decrease in second-quarter figures, the number of contracts sold rose by 10% year-over-year.
Keith Golembiewski, assistant vice president and director of LIMRA Annuity Research, noted, “There is continued broad interest from plan sponsors. LIMRA forecasts strong PRT sales for the second half of 2024.”
Lawsuits related to PRT deals are also on the rise. AT&T, Lockheed Martin, and Alcoa have faced class-action lawsuits challenging the transfer of pension plan liabilities to Athene, with transactions ranging from $2 billion to $9 billion and affecting tens of thousands of plan participants.
The law firm Schlichter Bogard, which handled these cases, is also representing Dow and Sakal.
The new complaint alleges, “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. By transferring Plaintiffs’ pension benefits to Athene, Defendants put Lumen retirees’ and their beneficiaries’ future retirement benefits at significant risk of default without adequate compensation.”
A similar lawsuit was filed on September 3 in the Southern District of New York against Bristol-Myers Squibb and State Street Global over a $2 billion PRT deal. Former Bristol Myers employee Charles Doherty is represented by Edward Stone Law and Zuckerman Spaeder in that case.
As of the first half of 2024, Athene has completed 48 pension risk deals worth $52.3 billion, covering more than 550,000 plan participants, according to its website. Athene is also a leading seller of annuities in recent LIMRA sales rankings.
A spokesperson for Athene issued the following 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 are guaranteed by Athene has received and will continue to receive their promised benefits in full. Each pension group annuity transaction selected by Athene undergoes a thorough review by fiduciaries and their independent advisers, who are experts in assessing insurer safety.
“Athene operates from a position of outstanding financial strength and is a secure provider of annuity benefits. We are well-reserved, with excellent capitalization and strong credit ratings, recently upgraded to A+ by AM Best.”
