Defined Benefit Plan Litigation

We represent employee groups in defined benefit plan litigation in three categories: (1) challenging under-performing pension assets, (2) contesting pension risk transfer (PRT) and (3) contesting plan termination.

Protecting plan participants in a defined benefit plan is typically a union’s responsibility, in the first instance. But we have seen too many cases where the union missed the mark on valuation and termination issues concerning a defined benefit plan. Working directly for employee groups, outside the union structure, we can better protect employees and employee plans by achieving a greater plan valuation than was thought possible.

Here is a closer look at each of these categories:


Under-Performing Assets

Defined benefit plans typically participate in a collective investment trust of pooled contributions from multiple different plans.  The largest master trusts for multiple plans are managed by Bank of New York Mellon and JP Morgan.  Even the largest defined benefit plans typically only own a small percentage of assets in the master trust (the collective investment trust).

For example, the Raytheon Bargaining Retirement Plan owns 3% of the Bank of New York Mellon Master Trust. And, in a very opaque description of plan assets, the Raytheon financial statements report that BONY Mellon Master Trust holds $9 billion in assets described only as “comingled funds.” The actual assets that make up the “comingled funds”–i.e., the Collective Investment Trust–need not be specifically reported–so are not.

It is inside these Collective Investment Trusts that significant profit opportunities exist for investment managers and large banks, at the expense of plan participants. Only by drilling down on the composition of assets held in the trust can participants identify how pension contributions are being used–and how to recover improper costs and expenses for the plan.

This is an area we focus on as part of any pension review, to assure that assets are properly valued and reported.


Pension Risk Transfer (PRT)--Transfer Assets to Insurance Company

In today’s environment (2023) many employers are trying to avoid pension obligations by transferring risk of the company’s defined benefit plan to an insurance company.  The insurance company thereafter creates an annuity for future payments. The keys to protecting assets during a risk transfer to an insurance company is to focus on valuation of the plan assets and carefully evaluate for self-dealing. It is axiomatic that large money transfers allow for skimming and excessive fees.  The US Department of Labor has published a guideline for evaluating PRTs–known as Guideline 95-1.


Plan Termination--Transfer Assets to PBGC

Transfer of defined benefit plan assets to the Pension Benefit Guaranty Corp. (PBGC) means that your pension plan has failed and can no longer provide the benefits you were promised by your employer.  Importantly, PBGC has a complex formula for paying benefits–but benefits paid by PBGC are never as high as provided in the original pension plan.  So it is in your interest to prevent a plan transfer for PBGC, if possible.  Due diligence and litigation can, and often does, help.



Even though ERISA prohibits using plan assets for trading in proprietary accounts by a plan fiduciary, the temptation runs high for a fiduciary to do so. While we never accuse of this behavior without convincing evidence, it is always something we evaluate for.



What is Pension Risk Transfer?

Pension Risk Transfer (PRT) is the off-loading of existing pension responsibilities (risk) to an insurance company in connection a company’s termination of its defined benefit plan for its employees.

Is it Legal for a Company to Terminate its Defined Benefit Pension Plan?

Yes. Under ERISA, a company (Plan Sponsor) is allowed to terminate its defined benefit pension plan, so long as it provides for payment of non-forfeitable (vested) benefits that have accrued under the plan.

Are there Legal Constraints on a Pension Risk Transfer?

Yes. A Plan Fiduciary must abide by the standard ERISA fiduciary duties in termination of a defined benefit plan and replacing it through purchase of an insurance contract or annuity. See, discussion of ERISA fiduciary duties, here.

Have Questions about your Pension or Benefits Plan?