Alaskan Mercer Suit Headed to Trial

(December 23, 2009) – Pension fund consultancy Mercer is headed to trial in Alaska over charges that it underestimated liabilities and then failed to admit theerror to the state’s pension and health plans for public employees.

Mercer’s motion to dismiss the case, brought by the Alaska Retirement Management Board against the firm over incorrect pension liability valuations, has been dismissed by a state judge, setting up a summer trial. According to the suit, Mercer made errors in its 2002 actuarial calculations for plans covering state teachers’ and other public employees’ retirement and health benefits. The Management Board claims that the firm underestimated liabilities by as much as $1 billion for that year, and, when the mistake was not corrected, further underestimates amounted to $1.8 billion, bringing the total to $2.8 billion.

The Management Board is seeking $2.8 billion in restitution.

The case is further complicated by the fact that the Management Board claims—due to deposition of Mercer employees—that the consultancy knowingly failed to notify the Board about errors in health and pension liabilities. Because the 2002 mistake would have been obvious had it later been corrected, the Board claims, Mercer continued to underestimate the funds needed to cover accrued liabilities. The consultancy, which has worked with the state for three decades, has conceded that the original error and the failure to disclose it were mistakes.