Alaska has filed a lawsuit, which seeks US$1.8 billion in damages from Mercer, the former actuary for the state’s Public Employees’ Retirement System(PERS)and Teachers’ Retirement System(TRS)pension plans.
The lawsuit alleges that Mercer made “mistakes in calculating the pension plans’ expected liabilities, including mistaken actuarial assumptions and methods about future healthcare costs, and basic mathematical and technical errors.”
“Just like any other professional, Mercer was required to use due care, skill and diligence in advising the state how to keep its retirement plans financially sound,” says Alaska’s attorney general, Talis Colberg. “When it came to calculating expected healthcare costs for the plans, and in other areas, Mercer failed to meet those standards and caused a significant part of the current unfunded liability of the plans.”
In a statement, Mercer says it stands behind the quality of its actuarial work for the state and will defend its interests vigourously.
“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 employees are retiring earlier and living longer than anticipated,” says the statement. “Accordingly, beginning in 2002, Mercer advised the state to significantly increase its contributions to the retirement systems.”
Mercer believes Alaska is now attempting to hold the company accountable for these economic trends, over which it has no control.
The PERS and TRS pension plans cover more than 80,000 retired and active participants. The unfunded liability of the two plans as of June 30, 2006, totaled approximately $8.4 billion.
To comment on this story, email craig.sebastiano@rci.rogers.com.