Central Pension Fund

U.S. Justice Department Puts a Stop to Actuary Scheme

Three years ago, International Union of Operating Engineers’ pension plans throughout the United States rejected an attempt by the country’s largest actuarial firms to shift liability for their professional malpractice from themselves to their pension fund clients. The firms were attempting to do this by inserting new clauses in their client contracts.

The International Union believed that to accept such liability would violate the requirements of federal pension law, and suspected that these firms were conspiring together to obtain these liability-shifting clauses in violation of federal antitrust law. Now, after a three-year battle, both the U.S. Department of Labor and Department of Justice have agreed.

In August of 2002, in response to a petition filed by the Central Pension Fund of the International Union of Operating Engineers and Participating Employers, the U.S. Department of Labor issued an Advisory Opinion stating that it would be a violation of the federal pension law, ERISA, for any pension plan to accept liability for actuarial malpractice, unless the plan trustees had first determined that there were no qualified actuarial firms available that would provide their services without such liability-shifting contract clauses.

The Department of Labor’s Advisory Opinion was an effective deterrent to further attempts by the large actuarial firms to force these contract clauses on their pension fund clients.

Next, the U.S. Department of Justice opened a separate investigation. That investigation focused on whether the actuarial firms had violated the federal antitrust laws in conspiring together to present their pension fund clients with no alternative but to accept these liability-shifting contract clauses.

After a 2½-year investigation, on June 24 of this year, the Justice Department issued a public statement titled “Justice Department Requires Actuarial Consultants to Halt Anticompetitive Information Exchange.”  The statement announced that the Justice Department had filed a lawsuit, and at the same time entered into a settlement agreement in federal court, in which an insurance company owned by three of the largest actuarial firms in the country had agreed that it would cease and desist from any further attempts to coordinate efforts by any actuarial firms in the country, to force pension funds to accept liability for actuarial malpractice.

The Complaint in the lawsuit, U.S. v. Professional Consultants Insurance Co., described a lengthy and detailed plan in which the large actuarial firms agreed that they would work together to force these contract clauses on their pension fund clients. They had agreed to work together because they knew that if only one or two firms sought these clauses, they would lose business to the firms that didn’t require the clauses.

Pensions & Investments magazine identified the three large firms that jointly operated the insurance company to be Towers and Perrin, Inc., Milliman USA and Watson Wyatt & Company. But the Department of Justice’s lawsuit makes it clear that these firms sought to include as many other firms as possible in the plan to make pension plans accept responsibility for actuarial malpractice.

The Justice Department identified this conduct as a classic antitrust conspiracy in restraint of trade --- a conspiracy to limit the market of actuaries that would offer their services to pension plans without making the plans accept malpractice liability.

These forceful actions by the Department of Labor and Department of Justice, which were prompted by the united action of IUOE pension plans throughout the country, have produced a result that will protect all U.S. pension plan participants from unnecessary and unwarranted risk from actuarial malpractice.

July 29, 2005