As a result of the PRT, in 2019, “plaintiffs and similarly situated Weyerhaeuser retirees and their beneficiaries are no longer covered by the plan and, therefore, no longer receive ERISA’s protections for employee retirement benefits,” according to the suit. The suit acknowledges that while the decision to transfer pension obligations is a business decision not subject to fiduciary standards, “the choice of an insurer is a fiduciary decision subject to ERISA’s strict standards of prudence and loyalty,” asserts the suit.

As the retirement industry evolves from guaranteed lifetime pension plans to 401(k)s, PRTs have become the linchpin connecting the past, present, and future of retirement benefits. These PRTs allow firms to offload the burdensome administration of allocating pension plans.

However, as private equity firms ramp up their pursuit of PRT deals, the number of related lawsuits has surged. In 2023, there were a record 773 PRTs, which is expected to grow. Increasingly, private equity firms are seeking to purchase stakes in annuity assets to gain access to a permanent capital stream. Companies involved in similar lawsuits include Lockheed Martin, AT&T, Alcoa, and GE.

However, according to the lawsuits, these companies bypassed their fiduciary responsibility to select the safest annuity for their employees’ pension plans. Instead, they chose more profitable PRT deals with companies like insurer Athene, potentially jeopardizing retirees’ financial security by removing their ERISA protections, according to Schlichter Bogard, which has brought legal action against these major corporations on behalf of plan participants.

“These PRT lawsuits are based on the unquestioned fiduciary duty of the employer that already exists under ERISA,” said Jerry Schlichter, founder of Schlichter Bogard, who is a pioneer in legal action against 401(k) and 403(b) plan sponsors on behalf of retirees and savers. “They all have Athene taking over their former pension obligations, and Athene is owned by a private equity firm with an in-house reinsurer based offshore, rather than a traditional life insurance company that is not owned by an offshore private equity firm,” said Schlichter.

In September, IBM completed a $6 billion PRT deal with Prudential in a group annuity buyout. However, this deal does not seem to be at risk of legal action because “Prudential is a traditional life insurance company that does not have the risk of Athene,” said Schlichter.

“These complaints are entirely baseless attempts by class-action attorneys to enrich themselves at the expense of retirees,” said a spokesperson for Athene. “Every pension group annuity participant whose benefits have been guaranteed by Athene has received and will receive their promised benefits in full. In each pension group annuity transaction for which Athene has been selected, there has been a robust review process carried out by a fiduciary and their independent advisers who are experts at assessing insurer safety. Athene operates from a position of outstanding financial strength, and is a safe and secure provider of annuity benefits. We are properly reserved and have excellent capitalization and strong credit ratings, with a recent rating upgrade to A+ by AM Best.”

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From: BenefitsPRO