Schlichter explores pension risk transfer lawsuit against Alcoa

Less than two weeks after the first lawsuits over pension risk transfers were filed, one firm appears to be preparing another case – against aluminum company Alcoa.

As of mid-2022, Alcoa had transferred $3.3 billion in pension obligations and assets to annuity provider Athene, the same provider used by the two companies facing proposed class actions over such arrangements.

Lockheed Martin and A&T were sued earlier this month, with the latter company facing two cases brought by different litigators. The law firm that seems ready to make pension risk transfers its next big focus of class actions – Schlichter Bogard – last week posted an ad on the website Top Class Actions seeking Alcoa retirees and pension beneficiaries to join a case that so far has not been filed.

Schlichter Bogard is behind the lawsuit against Lockheed as well as one of the two cases against AT&T. The other lawsuit against AT&T also name State Street Global Advisors as a defendant for its role in helping the telecom company select an annuity provider.

An Alcoa spokesperson did not immediately respond to a request for comment.

The active cases all involve the choice of Athene Annuity & Life Co. as the provider for the pension risk transfer. Athene is not named as a party in any of the cases and in a statement to InvestmentNews defended its capitalization, reserves, investments, and ratings, saying that it is a safe provider of annuities and that it believes the lawsuits are meritless. AT&T denied the allegations against it, while Lockheed and State Street declined to comment.

The cases allege breaches of fiduciary duties, claiming that in selecting Athene, the employers did not select the best possible provider. The lawsuits don't make any claims that pension participants have missed any benefits payments to date – but they may not need to.

In 1995, the Department of Labor issued a bulletin, known as IB 95-1, that outlined numerous considerations plan fiduciaries should take into account when choosing annuities for pension risk transfers, including providers’ investment portfolios, overall size, capital and surplus, lines of business, and other factors.

“[P]lan fiduciaries must take steps calculated to obtain the safest annuity available unless, under the circumstances, it would be in the interest of the participants and beneficiaries to do otherwise,” the DOL’s Employee Retirement Income Security Act Advisory Committee wrote last year.

The DOL has issued more than half a dozen pieces of guidance related to that bulletin, and some expect more to come, said Michelle Richter Gordon, co-founder of RIA Annuity Research & Consulting.

Richter Gordon and her business partner Mark Chamberlain offer consulting to help defined-contribution plan sponsors use a prudent process for annuity selection, though the practice is very likely expanding to pension risk transfers, she said.

Under the DOL’s guidance, annuity choice “is safest available – it is not ‘good enough,’” she said.

Fiduciaries face a difficult job in choosing insurance companies, as the annual reports the companies file can be thousands of pages – giving employers too much information to reasonably evaluate, Richter Gordon said.

“I’ve been setting up for years for that to be a possibility,” she said about the need for consulting on pension risk transfers, as many employers have opted for providers that some have called questionable. “The experience for me is pretty validating. We’ve been jumping up and down trying to draw attention to these concerns for a couple years.”

Pension risk transfers have become much more common over the past few years amid rising interest rates and investment returns that have pushed pension plans’ assets higher than their obligations, making annuity purchases more viable. Athene has been a winner in that trend, last year seeing more than $10 billion in pension group annuity sales.

According to a recent report from Aon, there were $45 billion in pension risk transfer premiums in 2023, down from $58.1 billion in 2022, but up from $38 billion in 2021. During that time, the number of transactions ballooned, going from 444 to 773.

This story was updated on March 26 to correct the name of Michelle Richter Gordon’s business partner.