Key Takeaways
- • The U.S. 2nd Circuit Court of Appeals upheld a district court dismissal of the Carlisle v. Board of Trustees complaint against the New York State Teamsters Conference Pension and Retirement Fund, finding no ERISA fiduciary breach in its private market allocations.
- • The appeals court found plaintiffs had standing and acknowledged private assets carry more risk, but ruled that fiduciaries engaged in normal weighing of tradeoffs rather than imprudent conduct.
- • The ruling also cleared the plan's financial adviser, Meketa Investment Group Inc., and actuary, Horizon Actuarial Services LLP, of wrongdoing.
- • The plaintiffs alleged the fund's 19.9% private equity allocation far exceeded a 13% average alternatives allocation among large multiemployer plans in a 2016 peer analysis.
- • The fund reported total assets above $2.9 billion as of January 2024 against $3.7 billion in liabilities, a 79.4% funded status.
Summary
The U.S. 2nd Circuit Court of Appeals upheld a lower court's decision to dismiss a complaint against the New York State Teamsters Conference Pension and Retirement Fund, according to Chief Investment Officer. In Carlisle v. The Board of Trustees of the American Federation of the New York State Teamsters Conference Pension and Retirement Fund, the 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.
Although the court found that the plaintiffs had standing to sue and acknowledged that private assets carry greater risk, it determined that the fiduciaries' conduct did not amount to a breach. Quoting the ruling, the court said the allegations that fiduciaries knew of the risk, volatility and illiquidity of such asset classes, and that similarly situated plans favored more stable 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 decision also cleared the plan's financial adviser, Meketa Investment Group Inc., and its actuary, Horizon Actuarial Services LLP.
The complaint, filed in 2020 in the U.S. District Court for the Northern District of New York, alleged that the board, Meketa and Horizon had imprudently adopted a riskier strategy in 2014 in response to the fund's 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 riskier assets such as private equity and emerging market equities. The plaintiffs cited a 2016 peer analysis showing an average alternative investment allocation of 13% among large multiemployer plans, compared with the 19.9% allocated to private equity by the New York State Teamsters fund. Plaintiff Robert Carlisle argued the strategy produced significant losses and subsequent benefit reductions, and sought a permanent injunction against continued risky allocations.
The plan reported that in 2022 and 2023 it 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 that assistance exceeded $2.9 billion against $3.7 billion in liabilities, a funded ratio of 79.4%. Chimicles Schwartz Kriner & Donaldson-Smith LLP, Bayard P.A. and Blau & Malmfeldt represented the plaintiffs, while Morgan, Lewis & Bockius LLP and Blitman & King Law Firm represented the Teamsters fund.
Although the court found that the plaintiffs had standing to sue and acknowledged that private assets carry greater risk, it determined that the fiduciaries' conduct did not amount to a breach. Quoting the ruling, the court said the allegations that fiduciaries knew of the risk, volatility and illiquidity of such asset classes, and that similarly situated plans favored more stable 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 decision also cleared the plan's financial adviser, Meketa Investment Group Inc., and its actuary, Horizon Actuarial Services LLP.
The complaint, filed in 2020 in the U.S. District Court for the Northern District of New York, alleged that the board, Meketa and Horizon had imprudently adopted a riskier strategy in 2014 in response to the fund's 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 riskier assets such as private equity and emerging market equities. The plaintiffs cited a 2016 peer analysis showing an average alternative investment allocation of 13% among large multiemployer plans, compared with the 19.9% allocated to private equity by the New York State Teamsters fund. Plaintiff Robert Carlisle argued the strategy produced significant losses and subsequent benefit reductions, and sought a permanent injunction against continued risky allocations.
The plan reported that in 2022 and 2023 it 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 that assistance exceeded $2.9 billion against $3.7 billion in liabilities, a funded ratio of 79.4%. Chimicles Schwartz Kriner & Donaldson-Smith LLP, Bayard P.A. and Blau & Malmfeldt represented the plaintiffs, while Morgan, Lewis & Bockius LLP and Blitman & King Law Firm represented the Teamsters fund.
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