Alaska Attorney General Sues Mercer Over Pension Plan Losses

Alaska’s attorney general has filed suit against Mercer seeking to recover the more than $1.8 billion the state says was lost because of Mercer’s misconduct as an actuary for its Public Employees’ Retirement System and Teachers’ Retirement System pension plans.

The suit, which was filed in state court in Juneau on Thursday, December 6, by Alaska Attorney General Talis Colberg, charges that the work of Mercer as an actuary for the plans was “riddled with significant errors.”

The suit says Mercer, which was the plans’ actuary from the 1970s until 2006, “made fundamental errors in methodology and even in basic calculations, and failed to assign competent, experienced personnel to work for the plans.”

The pension plans, which cover more than 80,000 retired and active participants, have unfunded liability of about $8.4 billion as of June 30, 2006, according to a statement issued by the office of Alaska Gov. Sarah Palin.

Responding to the suit, Mercer said in a statement: “To the extent the state has funding issues, they are caused by a number of economic factors, including skyrocketing medical costs, a downturn in the capital markets and the fact that retirees are retiring earlier and living longer than anticipated. Accordingly, beginning in 2002, Mercer advised the state to significantly increase its contributions to the retirement system. The state is now attempting to hold Mercer accountable for these economic trends, over which our firm has no control.”

Mark Iwry, senior fellow at the Washington-based Brookings Institution and a former Treasury official in charge of pension policy, says lawsuits by pension plans against actuarial consulting firms or consulting firms are uncommon, but not unprecedented.

Comparable lawsuits include a lawsuit filed by Paris-based investment bank Credit Lyonnais against a London-based unit of Watson Wyatt Worldwide over work that the pension consultant conducted for its group pension plan.

The bank claimed that Watson Wyatt overstated the funding position of the plan and, as a result, the bank granted richer benefits to employees than it otherwise would have. The claim was dismissed in 2005, with Watson Wyatt stating the two parties had agreed to the dismissal subject to certain confidential terms.

In 2006, the city of San Diego announced a $4.5 million settlement against San Francisco-based pension consulting firm Callan Associates Inc. that charged the firm had engaged in professional negligence, breach of fiduciary duty and breach of contract in connection with its work for the San Diego City Employees’ Retirements System.

A Callan spokeswoman said the suit had originally sought $50 million and that the retirement system remains a Callan client.

Filed by Judy Greenwald of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.