Intensified Legal Scrutiny Over U.S. Pension Risk Transfers in 2024

The landscape of pension risk transfer (PRT) transactions in 2024 has been marked by significant lawsuits alleging breaches of fiduciary duty by plan sponsors who shifted pension risks to annuity providers such as Athene Annuity and Life Co., State Street Global Advisors Trust Co., Prudential Financial, Inc., and RGA Reinsurance Company.

Participants argue that the chosen annuities do not meet the 'safest available' criterion set by the U.S. Department of Labor’s Interpretive Bulletin 95-1, a response to the 1991 insolvency of Executive Life Insurance Company which heavily invested in risky junk bonds. This bulletin mandates fiduciaries to seek the safest annuities, preventing retiree exposure to similar risks. 

Lawsuits emphasize that selecting companies like Athene, which has a risky offshore structure and is private equity controlled, contradicts the requirement of picking safe providers, potentially compromising retiree futures. Verizon Communications Inc. has also faced accusations in its PRT decisions. Judicial responses vary; for example, the U.S. District Court for the District of Maryland allowed a PRT lawsuit against Lockheed Martin Corporation to proceed, highlighting possible imminent dangers from risky provider selections contrasting with a dismissal in a similar case involving Alcoa USA Corp. by another court, citing lack of concrete injury.

These cases underscore the critical need for diligent fiduciary compliance with regulatory guidance to secure retiree welfare and to avoid potentially devastating financial consequences.