A federal judge late last week recommended dismissing a proposed class action lawsuit by retired AT&T employees.
The plaintiffs alleged that the company and State Street Global Advisors violated fiduciary requirements under the Employee Retirement Income Security Act. Two class-action complaints filed last year were consolidated in a single case in U.S. District Court for the District of Massachusetts. The telecommunications giant’s selection of Athene to take over its plan’s liabilities through an $8 billion pension risk transfer put AT&T’s 96,000 retirees in danger, according to the lawsuit.
In his report, however, U.S. Magistrate Judge Paul G. Levenson said the plaintiffs had adequately alleged standing but concluded that the complaint failed to establish viable claims under ERISA. He found no evidence of conflicts of interest or imprudent decision making in AT&T’s selection of Athene and ruled that facts did not support allegations of prohibited transactions. Levenson also said there was no basis to conclude that Athene’s annuities were riskier than other insurers’ annuities in the context of a fiduciary breach allegation and dismissed claims about the potential harms of pension risk transfers in general.
“The complaint itself is difficult to parse,” Levenson said. “It is cluttered with extended discursions about the asserted evils of permitting employers to satisfy their pension obligations by purchasing annuities: a policy judgment that has no direct bearing on any of plaintiffs’ legal claims.”
He further dismissed claims that:
- AT&T saved money by entering into a pension risk transfer;
- State Street had selected Athene for other deals to bolster its reputation as an independent fiduciary that saves plan sponsors money;
- Preexisting relationships among employees of AT&T, State Street and Athene created disloyalty in the annuity selection process;
- State Street acted disloyally because of its ownership interests in AT&T and Apollo Global Management, Athene’s parent company; and
- Athene was chosen imprudently.
Levenson also dismissed the plaintiffs’ service provider prohibited transaction claim based on AT&T hiring State Street, finding that the prohibited transaction applies only to hiring an existing service provider, which State Street was not. The service provider claim based on AT&T buying annuities from Athene also was dismissed, because Athene was not a preexisting service provider and a sale of annuities is not a service.
The report raised several concerns for Kent Mason, a partner in the law firm Davis & Harmon in Washington, D.C., which was not involved in the case,
“The problem with this mixed result is that courts have been extremely lenient on the issue of whether plaintiffs have sufficiently alleged a fiduciary breach, so the magistrate’s reasoning on this point may not be used by other courts,” he told Plan Adviser. “So, losing the standing issue here is problematic.”
Federal District Judge Nathanial Gorton, who had referred the case to Levenson for a report on the motion, still must confirm the recommendation. Objections to the report are due September 12.
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