Understanding Pension Risk Transfers: Legal Challenges and Compliance

Since early 2024, pension risk transfers (PRTs) have sparked legal actions involving 10 plan sponsors and their fiduciaries. These class-action lawsuits challenge the transfer of pension liabilities through group annuity contracts, citing breaches of fiduciary duties under the Employee Retirement Income Security Act (ERISA). The allegations focus on selecting annuity providers that are not deemed the safest options, alongside claims of prohibited transactions as per ERISA guidelines.

Despite increased industry activities in PRTs during 2025, litigation in this area hasn't matched the frequency of other ERISA-related legal battles. To date, only one out of 13 class actions emerged in 2025, indicating a tactical pause by plaintiffs' firms awaiting initial success rates. Most courts have dismissed these lawsuits, citing plaintiffs' lack of constitutional standing or inability to substantiate claims of fiduciary breaches and illicit transactions. Notably, the Southern District of New York dismissed "Dempsy et al. v. Verizon et al." on January 8, 2026, highlighting a trend favoring defendants.

Regulatory Compliance and Legal Precedents

On January 9, 2026, the Department of Labor (DOL) influenced the Konya v. Lockheed Martin Corp. case by asserting through an amicus brief that the plaintiffs don't meet Article III standing requirements. This stance, aligning with defendants, stressed the necessity for tangible and particularized injury to establish standing, reinforcing the regulatory compliance requirements within the ERP landscape.

Defensive Strategies and Court Rulings

The PRT transactions, involving liabilities from $1.5 billion to $9 billion and impacting up to 96,000 participants, faced defendants consistently filing motions to dismiss. Defense strategies highlighted issues such as lack of constitutional standing and absence of fiduciary breaches or prohibited transactions. Courts predominantly agreed, emphasizing procedural grounds like insufficient standing and procedural shortcomings in establishing fiduciary breaches.

The Verizon decision further elucidated legal precedents, asserting plaintiffs’ benefits remain unaffected by litigation outcomes. Courts found no evidence of fiduciary breaches, affirming that ERISA guidelines require a prudent selection process rather than selecting the "safest possible" annuity provider. The DOL's 1995 Interpretive Bulletin (95-1) was referenced to illustrate expectations of prudent provider selection under ERISA standards.

Implications for Plan Sponsors and Fiduciaries

For plan sponsors and fiduciaries, these legal outcomes emphasize the significance of maintaining robust fiduciary processes in PRT transactions. The lawsuits highlight the judicial requirement for demonstrable harm for successful litigation, illustrating the necessity of comprehensive procedural compliance. Adhering to these standards is critical in effectively defending against potential claims and ensures risk management processes align with industry norms and regulatory expectations.