A plan sponsor, charged with a fiduciary breach in its selection of a pension risk transfer (PRT) provider, is pushing back, moving to dismiss the suit.
The motion to dismiss—filed on behalf of plan fiduciaries at Lockheed Martin—notes that “plaintiffs seek a novel ruling from this Court that a decades-old, common corporate practice violates federal law, even though they have not suffered any injury because of it.”
In fact, according to the motion to dismiss the suit brought by former participant-plaintiffs of the Lockheed Martin defined benefit pension plan, “their complaint reads like an op-ed with little to no support arguing against the very idea of pension risk transfers (‘PRTs’)[i]—a mechanism by which fiduciaries of defined-benefit plans transfer fund assets and liabilities to insurance companies, effectively converting pensions into private annuities.”
The introduction to that motion further notes that “as far back as the 1990s, the federal government has approved of that practice as a permissible way to ensure that retirees can continue to receive their full benefits in the face of uncertain and unpredictable market conditions.”
The Suit
The suit—the plaintiffs are represented in this action by Schlichter Bogard LLP (and Darby Law Group LLC)—targets the decision to transfer those pension obligations to Athene. That transfer took place in two transactions—August 2021 (nearly $5 billion in pension obligations for 18,000 retirees to Athene) and in June 2022 an additional $4.3 billion in pension obligations (also to Athene) for 13,600 retirees, according to the suit.
“Instead of selecting the safest possible annuity to ensure that their employees and retirees would have continued financial security of Lockheed employees and retirees, Lockheed Martin selected Athene, which is substantially riskier than numerous traditional annuity providers,” the suit notes. “Because the market accounts for risk in pricing investments, it is likely that Lockheed saved money by selecting Athene instead of the safest annuity available. Putting the company’s financial interest in saving money ahead of participants’ interests in retirement security by selecting a riskier annuity provider is an egregious act of disloyalty,” it continues. “By transferring Plaintiffs’ pension benefits to Athene, Lockheed Martin put its employees’ future retirement benefits at substantial risk of default….”
The Motion to Dismiss
Lockheed Martin pushed back, restating the position of the plaintiffs as a “theory” that “by engaging in PRTs, Lockheed Martin violated a host of ERISA provisions—breaching fiduciary duties, engaging in prohibited transactions, and failing to monitor.” They continued to note that “…there is nothing illegal or nefarious about engaging in a PRT—which, by law, is not a fiduciary decision—or to do so with one of the leading insurance companies in that industry, Athene Annuity and Life Company and Athene Annuity & Life Assurance Company of New York (collectively, ‘Athene’). And Plaintiffs continue to receive all the benefits to which they are entitled.”
In essence, the argument put forward by Lockheed Martin is one of “no harm, no foul”—one that has in the past proven sufficient for fiduciary breach claims to be forestalled in defined benefit suits. Rather, “their claim that there is a risk that Athene might someday default on its obligations rests on pure speculation, with an attenuated series of hypothetical events standing between Plaintiffs today and any potential lost benefits in the future.”
“Even if jurisdiction existed here, Plaintiffs do not plausibly allege ERISA claims for breach of fiduciary duty, prohibited transactions, or failure to monitor,” according to the motion, which goes on to assert that “their complaint is replete with conclusory assertions about supposed duties and devoid of factual allegations to support the claims.” For example, the motion states:
- Plaintiffs include no allegations backing up their conclusion that Lockheed Martin was the relevant fiduciary for any breach.
- Even though ERISA is a process statute, the complaint does not set forth any allegations regarding the process[ii] with respect to the PRTs, let alone deficiencies in that process attributable to Lockheed Martin.
- There was no allegation that Lockheed Martin’s peers have done things any differently, “as they must to state a plausible claim of imprudence under ERISA.”
“In summary,” the motion to dismiss states that “the premise for their complaint rests on a simplistic and flawed theory that any company that engages in a PRT violates ERISA if it does not select the single largest, most expensive insurance provider that Plaintiffs prefer. Plaintiffs have failed to state a claim, and their complaint accordingly should be dismissed.”
[i] For those not familiar with the underpinnings of the pension risk transfer (PRT)—IB 95-1, issued by the Department of Labor in 1995 (in the wake of the Executive Life collapse), outlines the fiduciary standards to be used in selecting an annuity provider for a pension risk transfer. That includes considerations of the provider’s investment portfolio, size relative to the annuity contract, level of capital and surplus, liability exposure and availability of state government guaranty associations. The SECURE 2.0 Act of 2022 required the DOL to review IB 95-1 and recommend possible modifications to Congress by the end of 2023—but that hasn’t happened yet.
[ii] “Here, Plaintiffs’ complaint says nothing that could even remotely substantiate a plausible inference of breach by Lockheed Martin as a result of these PRTs. Plaintiffs are entirely silent about the process. Their only attempt to describe process is found where they simply list factors that fiduciaries must consider under DOL’s guidance on PRTs, Interpretive Bulletin 95-1.”
