Former Pension Plan Participants Sue Lockheed Over Athene Risk Transfer

Lockheed Martin is being sued by four former pension plan participants over the company’s 2021 and 2022 pension risk transfer transactions with insurer Athene Holding Ltd., alleging the plan sponsor breached its fiduciary duty under the Employee Retirement Income Security Act when choosing Athene for a PRT. The plaintiffs claim that Athene was not the “safest” available annuity provider, due to its private equity ownership. 

This is the second major lawsuit this week related to a plan sponsor’s choice of Athene to conduct a PRT. On Monday, it was announced that four former AT&T pension plan participants sued the company for choosing Athene for its $8.05 billion PRT.

The participants in the lawsuit against Lockheed Martin, represented by the law firms Darby Law Group LLC and Schlichter Bogard LLC, are seeking class action certification on behalf of participants in the Lockheed Martin Corp. Salaried Employee Retirement Program and the beneficiaries of the Lockheed Martin Aerospace Hourly Pension Plan. The complaint, Konya et al. v. Lockheed Martin Corp., was filed Wednesday in U.S. District Court for the District of Maryland.

Lockheed Martin transferred its pension liabilities to Athene Annuity and Life Co. and Athene Annuity & Life Assurance Co. of New York on two occasions: on August 3, 2021, when the company transferred $4.9 billion in pension obligations and plan assets for 18,000 beneficiaries, and again on June 27, 2022, when it transferred an additional $4.3 billion in obligations for 13,6000 beneficiaries.

The plaintiffs’ complaint notes that the pension transfer to Athene caused the two plans’ 31,000 beneficiaries to lose their participation in an ERISA-governed retirement plan. 

The lawsuit also alleges that the choice of Athene was not compliant with the Department of Labor’s Interpretative Bulletin 95-1, which mandates that plan sponsors must “take steps calculated to obtain the safest annuity available, unless under the circumstances it would be in the interest of participants and beneficiaries to do otherwise.” 

Athene, which is not a named party in the lawsuit, did respond to a request for comment. “While Athene is not a party to the putative class action lawsuit involving pension de-risking, we believe the case is without merit. It is also irresponsible and reckless by raising false concerns about the safety of retirement benefits guaranteed by Athene,” a spokesperson for Athene told CIO by email.

“Athene is well capitalized, properly reserved, soundly invested and highly rated. We are a safe and secure provider of annuity benefits.  All plan participants and beneficiaries continue to receive 100% of their expected benefits. Our outstanding financial strength, our commitment to customer service and our well diversified investment portfolio have made us a trusted provider of choice among pension plan fiduciaries.”

PE Backing

Athene was acquired in 2022 by private equity firm Apollo Global Management for $11 billion. At the time, Athene represented 40% of Apollo’s assets under management and 30% of its fee revenue, according to the lawsuit.

The insurers’ private equity ownership was criticized in the plaintiffs’ complaint, alleging that private equity-owned insurers take on high-risk and high-yield investments to achieve higher returns than traditional insurers. These private equity-owned insurers also tend to charge lower fees than traditional insurers to take on plan liabilities, the complaint states. 

The complaint against AT&T over its PRT with Athene alleged that 80% of Athene’s pension risk transfer liabilities are reinsured in Bermuda. The Lockheed Martin lawsuit accuses Athene of having a “highly risky offshore structure.”

The plaintiffs in the lawsuit against AT&T are represented by Libby Hoopes Brooks & Mulvey PC. a different law firm from those in the Lockheed complaint.

Annuities in Question

The lawsuit against Lockheed also cited an October 13, 2022, NISA Investment Advisors study evaluating the credit worthiness of major insurers, which found Athene the riskiest of nine major PRT providers. 

The plaintiffs also allege that the high risk associated with the investments of private equity-backed insurers are not worth their returns, stating that PE returns are not any better than index fund returns, after fees.

“Lockheed Martin failed to select the safest annuity available to provide retirees and beneficiaries pension benefits,” the plaintiffs allege. “Relative to traditional annuity providers, Athene invests in far riskier assets to support participants benefits payments. In a market with no shortage of stable and established annuity providers, no prudent and loyal fiduciary would have offloaded billions of participants retirement savings under the circumstances then prevailing”.

“In general, it is our company practice not to comment on pending litigation,” a Lockheed Martin spokesperson said when reached for comment. 

IB 95-1 lists the following criteria for determining the safest available annuities:

• The annuity provider’s investment portfolio quality and diversification;
• The size of the insurer relative to the proposed contract;
• The level of the insurer’s capital and surplus;
• The insurer’s exposure to liability; 
• The structure of the annuity contract and guarantees supporting them; and 
• The availability of additional protection through state guaranty associations.

The Department of Labor is currently considering modifications to IB 95-1, which will be closely watched by insurers and pension risk transfer advisories; the regulator has not yet released its final amendments.