Key Takeaways
- • The U.S. Second Circuit Court of Appeals upheld a district court dismissal of a complaint against the New York State Teamsters Conference Pension and Retirement Fund, ruling the plan did not breach its fiduciary duty under ERISA through its private market investments.
- • The appeals court found the plaintiffs had standing and acknowledged private assets carry more risk, but held that the fiduciaries' choices reflected the normal weighing of tradeoffs among a range of reasonable judgments.
- • The ruling cleared the plan's financial adviser, Meketa Investment Group Inc., and actuary, Horizon Actuarial Services LLP, of wrongdoing.
- • The complaint, filed in 2020, alleged the plan adopted a risky strategy in 2014, raising its return target to 8.5% from 8% and lifting private equity exposure to 19.9% versus a 13% peer average for large multiemployer plans.
- • As of January 2024, the plan held over $2.9 billion in assets against $3.7 billion in liabilities, a 79.4% funded ratio, after receiving approximately $1.4 billion in ARPA special financial assistance from the PBGC.
Summary
The U.S. Second Circuit Court of Appeals upheld a district court decision to dismiss a complaint against the New York State Teamsters Conference Pension and Retirement Fund, according to ai-cio.com. In Carlisle v. The Board of Trustees of the American Federation of the New York State Teamsters Conference Pension and Retirement Fund, the appeals court affirmed that the plan did not violate its fiduciary duty under the Employee Retirement Income Security Act by investing in high-risk private market assets.
The Second Circuit found that the plaintiffs had standing to sue and acknowledged that private assets carry greater risk. It nonetheless concluded that the fiduciaries' conduct did not breach ERISA duties. Quoting the ruling, the court said the allegations that fiduciaries knew of the "notable risk, volatility, and illiquidity" of such assets, and that other ERISA plans favored steadier investments, "do not indicate that the Plan fiduciaries did more than engage in the normal practice of weighing 'tradeoffs' and selecting from a 'range of reasonable judgments.'" The ruling also cleared the plan's financial adviser, Meketa Investment Group Inc., and its actuary, Horizon Actuarial Services LLP.
The plaintiffs filed the complaint in 2020 in the U.S. District Court for the Northern District of New York. It alleged the plan's board, along with Meketa and Horizon, imprudently adopted a riskier strategy in 2014 in response to declining funding status. According to the complaint, the fund, which managed $1.5 billion in 2018, raised its actuarial return target to 8.5% from 8% alongside a significant increase in exposure to private equity and emerging market equities. The complaint cited a 2016 peer analysis showing an average alternative investment allocation of 13% among large multiemployer plans, compared with the 19.9% the fund allocated to private equity. Plaintiff Robert Carlisle argued the strategy produced significant losses and benefit reductions for participants and sought a permanent injunction.
The board reported that in 2022 and 2023 the fund received approximately $1.4 billion in special financial assistance from the Pension Benefit Guaranty Corporation under the American Rescue Plan Act. As of January 2024, total plan assets, including this assistance, exceeded $2.9 billion against $3.7 billion in liabilities, a funded ratio of 79.4%.
The Second Circuit found that the plaintiffs had standing to sue and acknowledged that private assets carry greater risk. It nonetheless concluded that the fiduciaries' conduct did not breach ERISA duties. Quoting the ruling, the court said the allegations that fiduciaries knew of the "notable risk, volatility, and illiquidity" of such assets, and that other ERISA plans favored steadier investments, "do not indicate that the Plan fiduciaries did more than engage in the normal practice of weighing 'tradeoffs' and selecting from a 'range of reasonable judgments.'" The ruling also cleared the plan's financial adviser, Meketa Investment Group Inc., and its actuary, Horizon Actuarial Services LLP.
The plaintiffs filed the complaint in 2020 in the U.S. District Court for the Northern District of New York. It alleged the plan's board, along with Meketa and Horizon, imprudently adopted a riskier strategy in 2014 in response to declining funding status. According to the complaint, the fund, which managed $1.5 billion in 2018, raised its actuarial return target to 8.5% from 8% alongside a significant increase in exposure to private equity and emerging market equities. The complaint cited a 2016 peer analysis showing an average alternative investment allocation of 13% among large multiemployer plans, compared with the 19.9% the fund allocated to private equity. Plaintiff Robert Carlisle argued the strategy produced significant losses and benefit reductions for participants and sought a permanent injunction.
The board reported that in 2022 and 2023 the fund received approximately $1.4 billion in special financial assistance from the Pension Benefit Guaranty Corporation under the American Rescue Plan Act. As of January 2024, total plan assets, including this assistance, exceeded $2.9 billion against $3.7 billion in liabilities, a funded ratio of 79.4%.
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