Florida Pensions Agree to Settle Perrigo Lawsuit for $31.9 Million

Pharmaceutical company Perrigo has agreed to pay $31.9 million to settle a class action securities lawsuit led by two Florida pension funds that accused the company of misleading investors regarding a $1.9 billion Irish tax bill.

Lead plaintiffs the City of Boca Raton General Employees’ Pension Plan and Palm Bay Police and Firefighters’ Pension Fund had alleged that Perrigo, which is operationally based in the US and domiciled in Ireland, “made material misrepresentations and omissions” to investors regarding a €1.636 billion ($1.9 billion) tax liability assessed by the Irish government.

The case centers on a disclosure Perrigo made after the stock market closed Dec. 20, 2018, announcing that its subsidiary received a notice of amended assessment from Ireland’s tax authority saying it owed the €1.636 billion in back taxes. Shares of Perrigo fell 29% the following day to $37.03 from $52.36.

According to the complaint, which was filed in the Southern District of New York, the $1.9 billion tax liability was the largest such tax assessment in Irish history, and a “catastrophic result for a company with just $400 million in cash on hand.”

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The complaint also alleged that Perrigo had kept investors in the dark about an audit findings letter it received nearly two months earlier from Irish Revenue saying that the company owed significant back taxes.

The tax assessment was related to the sale of Perrigo’s rights to multiple sclerosis drug Tysabri for approximately $6 billion. The lawsuit alleges that, for years, Perrigo incorrectly treated the proceeds from the sale of Tysabri and the resulting royalty income as ordinary income, which was taxed at a 12.5% rate, rather than as a capital gain, which was subject to a 33% tax rate.

“This incorrect tax treatment clearly violated Irish tax law,” the complaint said.

In November 2017, Irish Revenue launched an audit of Perrigo’s tax treatment of the Tysabri transactions, which it said was triggered by a discrepancy between subsidiary Elan’s tax classification of the Tysabri sale and the tax treatment that company applied to the transaction. Elan had classified the Tysabri proceeds as a net gain on divestment of business, or as ordinary income instead of as capital gains.

The lawsuit alleged Perrigo knew that Irish Revenue was taking the position that the Tysabri transaction was subject to the higher 33% capital gains tax rate. It also alleges that the company misled the public in its US Securities and Exchange Commission (SEC) Form 10-Q by disclosing only that it had received “an audit finding letter” from Irish Revenue without revealing the amount of the potential tax liability and caused shareholders to buy stock at artificially inflated prices.

The settlement hearing will be held on Feb. 16. Perrigo denies any wrongdoing.

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Tags: City of Boca Raton General Employees’ Pension Plan, Irish Revenue, Palm Bay Police and Firefighters’ Pension Fund, Perrigo, securities lawsuit, Settlement, Tysabri

After years of annual cost increases, Connecticut’s public pension costs will be reduced by $290 million by 2026, according to a report from the state General Assembly’s Office of Fiscal Analysis. The expected savings were attributed to a volatility cap that allowed a $1.6 billion payment toward the state retirement systems’ $40.8 billion debt in September.

According to the report, the state’s Budget Reserve Fund—aka Connecticut’s rainy day fund—is currently at the legal maximum level of 15% of appropriations and is expected to “significantly exceed” that cap in 2022 and 2023 by more than $1 billion each year. The excess triggers a state law that uses the extra funds to pay off the unfunded liabilities of Connecticut’s State Employees Retirement System (SERS) and Teachers’ Retirements System (TRS).

The Office of Fiscal Analysis said the total amount available for transfer was more than $1.6 billion. Treasurer Shawn Wooden designated $903.6 million for TRS, which is 5% of the system’s $18.1 billion unfunded liability, and $719.7 million to SERS. The report also said that because the Budget Reserve Fund continues to exceed its statutory cap, a total of $4.07 billion, or 9.7% of the state’s unfunded liability, is projected to be transferred to the pension systems from 2022 to 2025.

“For the second year in a row and only the second time in history, Connecticut has this opportunity to responsibly pay down our long-term unfunded pension liabilities to help put the state on a more sustainable course,” Wooden said in a statement when he transferred the funds in September. “Protecting and growing our Budget Reserve Fund has led to greater liquidity [and] financial strength and put us in a stronger fiscal position throughout the pandemic.”

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The Office of Fiscal Analysis said that despite initial concerns about the impact of the pandemic on state finances, fiscal years 2020 and 2021 ended with surpluses of $38.7 million and $480.9 million, respectively. It also said the impact of the pandemic “continues to be muted” as it currently projects surpluses of $915.6 million and $512.4 million in fiscal years 2022 and 2023, respectively.

However, the office warned that “significant uncertainty remains,” adding that “it is uncertain how several revenue and expenditure trends, which contribute to surpluses in the biennium, will continue into the out-years.” It also projected deficits of $931.9 million, $670.3 million, and $326.6 million for fiscal years 2024, 2025, and 2026, respectively. It attributed the deficit forecasts to the expiration of nearly $1.2 billion in fiscal year 2023 revenue replacement funding associated with the American Rescue Plan Act (ARPA).

Despite this, the report pointed out that “an encouraging note in the out-years is that revenue growth outpaces fixed-cost growth, creating a positive structural balance.”

According to think tank Yankee Institute, the growth of Connecticut’s fixed costs, such as debt payments, pension contributions, retiree health care, and Medicaid, outpaced revenue growth by approximately 2.8% per year, “creating a built-in structural deficit for the state.” However, the pension payoff, combined with sharply rising revenue forecasts, reduced that gap by enough that 2026 revenue will outpace fixed costs by an average of 0.4%.