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Pension Risk Transfers and the Continuing Concern About Buying a Pig in a Poke

by | Mar 21, 2024 |

By Michael Schloss

Pension risk transfers (“PRTs”) continue to make the news. And well they should. Last year alone, over $100 billion in liabilities were transferred from defined benefit pension plans to insurance companies. And the trend continues with, just this month, Verizon inking a $5.9 billion deal with Prudential and RGA. See, e.g.,

An article of mine from summer 2023 ( discussed some of the financial pitfalls that may be encountered by plans engaging in PRTs. For example, there could be the concern that a plan may be paying too much for annuities because its fiduciaries failed to scrub their participant data, resulting in the purchase of annuities for participants who are missing and for deceased individuals (who will never be paid), and other unnecessary features such as joint-and-survivor features for unmarried participants. These concerns are not hypothetical. Recently, it was discovered that the Central States plan had claimed $127 million in bail-out funding for at least 3,479 deceased participants. See

The article also had the following to say about the widely-held concern that PRT activity is leaving participants with annuities backed by risky investments:

Stakeholders have raised concerns that the insurance industry is pursuing increasingly riskier investment strategies in the aggregate, including increased investing in asset-backed securities such as collateralized loan obligations (including the riskier tranches) and that private credit may overexpose insurers to investment and liquidity risk that could lead to solvency issues for policyholders. It is a volatile situation that a fiduciary may find clashes with obligations around retirement security for plan participants and beneficiaries.

Litigation Update

This month those concerns took the form of two proposed class action lawsuits filed against plan sponsors that had engaged in PRTs with Athene Annuity and Life Company and Athene Annuity & Life Insurance Company of New York (“Athene”). See generally

The first of these lawsuits, Piercy v. AT&T, et al., 1:24-cv-10608 (D. Mass. 3/11/24), was filed against AT&T and State Street relating to the purchase of over $8 billion in annuities from Athene for 96,000 participants and beneficiaries in the AT&T Pension Benefit Plan (the “AT&T Plan”). Plaintiffs’ basic allegation is that Athene, due to the particular nature of its investments as well as its particular reinsurance and co-insurance arrangements “is, according to objective measures, the least safe annuity provider … even among the category of least safe annuity providers.” Piercy Complaint, ¶ 89. Plaintiffs argue on that basis that AT&T (as the plan sponsor) and State Street (as the AT&T Plan’s independent fiduciary) acted in an imprudent manner and in the financial interest of AT&T in selecting Athene-issued annuities and should be held accountable for violations of ERISA’s fiduciary rules.

In the Piercy action, plaintiffs seek novel types of relief. These include an order directing AT&T and State Street to guarantee the annuities at their own expense and to return the class members to the AT&T Plan as participants. It is noted that neither Athene nor the AT&T Plan itself are defendants in the proposed class action.

Also last week, another class-action lawsuit was filed premised on arguments that the purchase of Athene-issued annuities was imprudent, Konya v. Lockheed Martin Corporation, 8:24-cv-00750-PJM (D. Md. 3/13/24)Similarly to the AT&T lawsuit, Konya, which involves a particular Lockheed plan (the “Lockheed Plan”), is grounded in the basic premise that “Lockheed Martin failed to select the safest annuity available to provide retirees and beneficiaries pension benefits. [The Konya Complaint goes on to allege that,] [r]elative to traditional annuity providers, Athene invests in far riskier assets to support participants’ benefit payments.” Konya Complaint, ¶ 60.  

For relief, the Konya plaintiffs seek disgorgement from Lockheed of “all sums derived from the improper transactions” and an order requiring Lockheed “to post adequate security to assure receipt by Plaintiffs and class members of all retirement benefits covered by Athene annuities, plus prejudgment interest.” Just as the Piercy complaint does not name Athene or the AT&T Plan as defendants, neither Athene nor the Lockheed Plan are named as defendants in the Konya lawsuit.

Interpretive Bulletin 95-1 – in General

Both lawsuits rely heavily on guidance issued by the Department of Labor (the “Department”) in 1995 in the aftermath of the collapse of Executive Life Insurance Company. In Interpretive Bulletin (“IB”) 95-1, 29 C.F.R. § 2509.95-1, the Department provided its views “relating to the fiduciary standards under ERISA when selecting an annuity provider for a defined benefit pension plan.” In IB 95-1, the Department opined that a prudent and loyal fiduciary, when selecting an annuity, “must take steps calculated to obtain the safest annuity available, unless under the circumstances it would be in the interests of participants and beneficiaries to do otherwise.” The Department listed six factors it believed a fiduciary should consider which, among others, the Department found relevant. See 29 C.F.R. § 2509.95-1(e). These factors include:

  1. The quality and diversification of the annuity provider’s investment portfolio;
  2. The size of the insurer relative to the proposed contract;
  3. The level of the insurer’s capital and surplus;
  4. The lines of business of the annuity provider and other indications of an insurer’s exposure to liability;
  5. The structure of the annuity contract and guarantees supporting the annuities, such as the use of separate accounts;
  6. The availability of additional protection through state guaranty associations and the extent of their guarantees. Regarding this sixth factor, the Department stated: “Unless they possess the necessary expertise to evaluate such factors, fiduciaries would need to obtain the advice of a qualified, independent expert. A fiduciary may conclude, after conducting an appropriate search, that more than one annuity provider is able to offer the safest annuity available.”

The Department also noted that “fiduciaries selecting the annuity provider [with] an interest in the sponsoring employer which might affect their judgment [could] create the potential for a violation of ERISA § 406(b)(1).”

Reconsideration of IB 95-1

IB 95-1 might not be the last word from the Department on the issue. Section 321 of the SECURE 2.0 Act of 2022 (“SECURE 2.0”) directs the Department to review IB 95-1, to consult with the ERISA Advisory Council (the “Council”) as to whether amendments are warranted, and to report to Congress on the matter. The Department consulted with the Council on July 18, 2023. Ahead of that meeting, the Department issued a “Consultation Paper” outlining the Department’s review of IB 95-1 as well as trends reported by “stakeholders” and thoughts on whether IB 95-1 should be amended in light of those trends.

After receiving the Consultation Paper and after its July 18 meeting with the Department, the Council on September 1, 2023, issued its own Statement regarding IB 95-1. In its Statement, the Council set forth its views on a number of questions relating to the future of IB 95-1 and, in particular, discussed certain matters relating to the selection of annuities. These views include a discussion by six members recommending no change to IB 95-1 and conclude with the old saying, “if it ain’t broke, don’t fix it.”

The remaining matters identified by the Council relate to suggestions that the Department consider making a variety of changes to IB 95-1. However, only two changes were supported by a majority of the Council. In particular, a majority of the Council (i) recommended that the Department update IB 95-1 to expand on its existing language addressing how a fiduciary should consider an annuity provider’s administrative capabilities and experience,” and (ii) noted that, “[t]he availability of additional [protections] through [state guaranty associations] and the extent of the guarantees are an important factor in determining the appropriate structure of the annuity contract, such as purchasing an annuity from a single insurer or annuities from multiple insurers, and guarantees supporting the annuities, such as the use of separate accounts.”

Among other issues, the Council’s Statement identified four recommendations, which did not garner a majority, that focused on whether IB 95-1 should be updated to include consideration of an annuity provider’s ownership structure. Two recommendations, asking the Department to clarify IB 95-1 to consider additional aspects of an insurer’s portfolio, also did not find a majority of the Council in support. In addition, seven members of the Council (one shy of a majority) recommended that IB 95-1 be amended to incorporate reinsurance as a factor in the evaluation of an insurer.

What’s Next?

It will be interesting to see how the two lawsuits play out in their initial stages. The coming months are bound to see substantial motion practice as defendants AT&T, State Street and Lockheed will likely file papers seeking to have both lawsuits dismissed. How the courts handle the novel types of relief requested in the complaints, especially in light of the fact that no participant has yet to suffer an unpaid pension benefit, may well be important issues that the courts will want to address.

As the cases move through the courts, the Department will presumably continue its consideration of changes to IB 95-1 as directed by Congress in SECURE 2.0. Whether the Department will say anything before either lawsuit reaches a decision point adds another interesting wrinkle to the pending cases. Further, beyond its impact on any pending litigation, the Department’s future report to Congress as required by SECURE 2.0 may well impact future PRTs. Indeed, given the presence of active litigation and the strong possibility that the Department may update IB 95-1, it is suggested here that fiduciaries considering any future PRT transactions should tread very carefully.

Michael Schloss, Of Counsel with The Wagner Law Group, specializes in employee benefit issues, is a highly sought speaker on a wide range of topics relating to Title I of ERISA and DOL activities, and has received multiple awards for his service at the DOL.