AT&T sued over 2023 risk transfer

On March 11, 2024, a group of plaintiffs filed a class action – Piercy v. AT&T Inc. et al. – against AT&T Inc. (“AT&T”), AT&T Services, Inc. (“AT&T Services”), and State Street Global Advisors Trust Co. (“State Street”), in connection with the transfer of benefit obligations with respect to approximately 96,000 participants in the AT&T Pension Benefit Plan to Athene Annuity and Life Company and Athene Annuity & Life Assurance Company of New York. AT&T Services is the plan administrator and a named fiduciary under the plan, and State Street was an advisor with respect to that transaction.

The lawsuit represents the first major challenge to a risk transfer of defined benefit plan obligations to a “private equity-backed” insurer. It alleges that, in selecting Athene for this risk transfer, defendants breached their ERISA fiduciary duties of loyalty and prudence and, under Department of Labor Interpretive Bulletin 95-1, their obligation to select the “safest available annuity.”

A preliminary word about the challenge of applying ERISA fiduciary rules to risk transfer transactions

The selection of an annuity carrier for the transfer of liabilities from a DB plan is a fiduciary act. These “risk transfers,” however, present significant ERISA fiduciary issues, because the incentives of the sponsor/fiduciary (who typically selects the carrier) are not aligned with the incentives of participants. The sponsor generally wants the least expensive annuity, while participants want the annuity with the least financial risk.

There is not an easy solution to this problem. At some point, participant demands for “security” may become so extravagant that they become unreasonable. At some point, the sponsor’s desire for a “good deal” can result in an unreasonable risk to participants.

Piercy v. AT&T Inc. et al. provides an opportunity – if it goes to a decision on the merits – for a real-life consideration of how to square this circle.


According to plaintiffs, on May 23, 2023, AT&T transferred to Athene liabilities under the plan with respect to approximately 96,000 participants and beneficiaries. In connection with that transaction, AT&T booked “a $363 million gain on its financial statements.” State Street served as an advisor and “independent fiduciary” with respect to that transaction.

In what follows we briefly summarize plaintiffs’ factual allegations with respect to this risk transfer. Two qualifying observations: First, this is a summary, but the complaint does go into some detail as to Athene’s financial arrangements/capital structure. Second, this is just plaintiffs’ version – we would expect pushback from defendants on many (if not all) of the issues plaintiffs raise.

Allegations with respect to Athene

Quoting plaintiffs’ complaint:

Athene is one of a new class of private equity-backed insurers (“Risk-Taking Insurers”) engaged in the dicey “shadow banking” sector.

These new Risk-Taking Insurers are more likely than traditional annuity providers to become insolvent now and in the future. Many (i) have not been tested through a full economic cycle and have never weathered a recession; (ii) re-insure annuities with offshore insurance companies that are not required to set aside as much capital as the traditional U.S.-based insurance companies; and/or (iii) invest in assets that are riskier, less liquid and more opaque than those invested in by traditional providers, such as collateralized loan obligations (“CLOs”), asset-backed securities, private fixed-income placements, subordinated debt, and even the stock of affiliated companies.

[A] central feature of Athene’s organizational structure today is the location of its captive reinsurer in Bermuda to take advantage of Bermuda’s favorable regulatory regime.

Athene’s excessive reliance on affiliated offshore reinsurance … is troublesome for those whose retirement benefits are affected by “Pension Risk Transfers.”

Athene … reports a very large amount of modified co-insurance (“Modco”) arrangements … allow[ing] Athene to remove risky assets from its own reported Risk Based Capital (“RBC”), which has the effect of artificially inflating RBC ratios, which in turn allows Athene to hold a substantially lower amount in minimum required surplus.

Athene … has a very high concentration of risky assets relative to its surplus.

Athene’s affiliated transactions are …dramatically understated.

The market price of Athene’s bond risk is 21.4% higher than U.S. Treasuries, as compared to the safest annuity provider analyzed by the NISA [NISA Investment Advisors, LLC] Reports (New York Life), whose market price is 7.4% higher than U.S. Treasuries – a 14% gap.

Allegations with respect to State Street

According to plaintiffs, in connection with this risk transfer, “AT&T and AT&T Services sought assistance from State Street’s ‘Independent Fiduciary Services team.’” As such, plaintiffs allege, State Street was “acting as a fiduciary of the Plan – a fact that AT&T and State Street have affirmed multiple times in public representations and in securities filings.”

Allegations with respect to the transaction

Quoting plaintiffs’ complaint:

Although AT&T has not been forthcoming about the amount of money it paid Athene to assume the pension benefit obligations, AT&T’s securities filings reveal that it paid Athene an unusually low percentage of the value of the pension benefits being transferred.

AT&T’s purchase of the GACs [group annuity contracts] was funded directly and exclusively by Plan assets, requiring no cash or contribution from AT&T.

The purchase closed on May 3, 2023.

The GACs cover approximately 96,000 Plan participants and beneficiaries.

AT&T [recognized] a $363 million gain on its financial statements [in connection with this risk transfer].

AT&T will, in addition, enjoy administrative cost savings due to the elimination of the 96,000 participants from the Plan … [of] between $90–180 million in administrative cost savings.

AT&T may also enjoy substantial reductions in investment management fees given the Plan’s smaller pool of assets.

AT&T will also profit from the transaction by saving on flat-rate and variable-rate premiums that it previously paid the PBGC to insure its retirees’ benefits.

ERISA claims

With this factual background, plaintiffs claim that:

AT&T and AT&T Services violated their ERISA duty of loyalty (to act in the best interests of plan participants) and their ERISA duty of prudence “when they selected Athene as the annuity provider to receive Plaintiffs’ pension liabilities, thereby allowing AT&T to receive at least a $363 million profit.”

In this connection, under IB 95-1 and ERISA, AT&T and AT&T Services were required “to obtain the safest annuity available, which requires an objective, thorough search to determine which annuity provider is best for plan participants,” and that “Athene was not the safest annuity available, its selection was not in Plaintiffs’ best interest, and AT&T and AT&T Services did not take the necessary steps to obtain the safest annuity available.”

As a result, AT&T and AT&T Services substantially increased risk that plan participants will not receive their full retirement benefits and “decreased value of their pension benefits, which are far less secure as a result of the transaction.”

And plaintiffs claim that State Street, both as a fiduciary and a co-fiduciary, breached its duties of loyalty and prudence “through its participation and assistance in AT&T’s unlawful annuity transaction with Athene on behalf of the Plan.”

Plaintiffs also make four prohibited transaction claims that – unless plaintiffs are successful on the fiduciary claims just outlined – would appear to be covered by applicable exemptions.

What plaintiffs are asking for

As relief, plaintiffs are asking that:

The defendants purchase a guarantee of the transferred benefits “from reliable insurers.”

The court issue an injunction “assuring receipt by Class members of the amounts to be provided by the annuities, plus reasonable prejudgment interest.”

“AT&T and AT&T Services … place the GACs it unlawfully purchased inside the Plan as a Plan asset and to return the Class members to their former status as Plan participants.”

The court order AT&T to remain secondarily liable.

The defendants disgorge the profits earned from the unlawful transaction.

The court provide any other appropriate relief.

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We note that on March 13, 2024, a similar lawsuit was filed against Lockheed Martin Corporation.