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AT&T Facing ERISA Breach of Fiduciary Duties Suit for Pension Risk Transfer
Practical Law Legal Update w-042-8658 (Approx. 4 pages)
AT&T Facing ERISA Breach of Fiduciary Duties Suit for Pension Risk Transfer
by Practical Law Employee Benefits & Executive Compensation
| Published on 02 Apr 2024 • USA (National/Federal) |
In Piercy et al v. AT&T Inc. et al, four individuals filed a class action complaint against pension benefit plan fiduciaries for a pension risk transfer for offloading pension liabilities to an annuity provider alleging a breach of fiduciary duty and prohibited transaction under the Employee Retirement Income Security Act of 1974 (ERISA).
On March 11, 2024, in Piercy et al v. AT&T Inc. et al, four individuals filed a complaint against AT&T Inc., AT&T Services, Inc., and State Street Global Advisors Trust Co. in the US District Court for the District of Massachusetts for violations breaching their fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA) (1:24-CV-10608 (D. Mass. Mar. 11, 2024)) for a pension risk transfer by offloading pension liabilities to an annuity provider.
Background
AT&T sponsors and operates the AT&T Pension Benefit Plan, which is an ERISA defined benefit plan. Plaintiffs are four individuals who were participants in the Plan suing AT&T and State Street individually and on behalf of the 96,000 Plan participants and beneficiaries alleging that their pensions are no longer guaranteed by AT&T or afforded ERISA protections.
In April 2023, AT&T offloaded over $8 billion of its Plan pension liabilities through a pension risk transfer by purchasing group annuity contracts from Athene Annuity and Life Company and Athene Annuity & Life Insurance Company of New York (collectively "Athene") in exchange for Athene assuming the obligation to pay the Plan's participants and beneficiaries their retirement benefits. The suit alleges that the transfer allowed AT&T to profit by more than $363 million and that State Street, an independent fiduciary of the plan, was paid to assess, recommend, and bless the transaction, and profited from the transfer.
The suit alleges that following this transaction:
- AT&T:
- no longer guarantees payment of the retirement benefits; and
- is no longer subject to ERISA's funding requirements for these liabilities.
- The Plan participants and beneficiaries were removed from the Plan and outside of ERISA protections.
- The Pension Benefit Guaranty Corporation (PBGC) no longer provides a backstop to ensure the participants receive their retirement benefits.
- The Plan no longer pays PBGC premiums associated with the participants.
- The ejected participants are solely reliant on Athene for their retirement benefits.
Pension Risk Transfers and Interpretive Bulletin 95-1
Interpretive Bulletin 95-1 was issued by the DOL in 1995 and clarifies the fiduciary responsibilities of plan sponsors when they purchase annuities to transfer pension risk to insurers and provides that:
- Selecting an annuity provider is a fiduciary decision under ERISA.
- Employers must act solely in the interest of plan participants and beneficiaries and in accordance with ERISA's prudence standard when selecting an annuity provider.
SECURE 2.0 requires the DOL to review Interpretive Bulletin 95-1 to determine whether it should be amended.
Complaint
The plaintiffs' filed a class action lawsuit alleging that AT&T and State Street breached their fiduciary duties under ERISA and Interpretive Bulletin 95-1 and the transaction was prohibited under because:
- AT&T and State Street made an annuity provider selection that was not safe, reasonable, or prudent because they did not:
- conduct an independent impartial investigation to identify and select and annuity provider in Plan participants' best interests; or
- solicit bids and other information that would have revealed that Athene was not a safe or reasonable selection, or they ignored or unreasonably disregard such bids and information.
- Athene engages in the "shadow banking" sector which involves high-risk, low transparency strategies and has flunked multiple tests on annuity provider safety or reasonability because:
- Athene lacks a sufficient track record to be entrusted with guaranteeing such a massive amount of pension liabilities;
- Athene is invested in riskier assets to support payments;
- Athene's risk is increased by its reinsurance of annuities with offshore accounts that are not as transparent or required to set aside as much capital as US insurers;
- Athene employs questionable accounting strategies to overvalue its assets; and
- the risks inherent in Athene's strategies are magnified by unstable economic conditions.
- The risk posed by Athene was publicly known and widely reported.
- The Plan participants had no say in the transaction, and they bear the transactions risks while enjoying none of the profits gained by AT&T for purchasing a much less expensive, but far riskier annuity than was available.
- Based on Athene's current and likely future financial position, there is a substantial risk that participants will not receive their full retirement benefits.
Plaintiffs are seeking:
- Injunctive relief to require AT&T to guarantee the retirement benefits that were part of the workers' employment bargain with AT&T and which they earned.
- Monetary relief from AT&T and State Street including the profit earned from the unlawful transaction and losses resulting from their illegal conduct.
Practical Impact
There are now three recent suits in different district courts regarding a breach of fiduciary duty for pension risk transfers in:
- Piercy et al v. AT&T Inc. et al, 1:24-CV-10608 (D. Mass. Mar. 11, 2024).
- Schloss v. AT&T Inc., 1:24-CV-10656 (D. Mass. Mar. 15, 2024).
- Konya et al. v. Lockheed Martin Corp., 8:24-CV-00750 (D. Md. Mar. 13, 2024).
Practitioners should also consider that SECURE 2.0 requires the DOL to review Interpretive Bulletin 95-1 to determine whether it should be amended which could also impact these cases. We will continue to monitor these cases.