In January of this year, the Central Pension Fund of the International Union of Operating Engineers and Participating Employers took on a fight with the actuarial consulting industry that could have broad implications for retirement security.

Much like the auditing industry in the Enron case, and other recent cases, the actuarial consulting industry in the year 2001 was subject to several highly publicized lawsuits by pension plans that had been damaged by the negligent work of their actuaries.

Because of those lawsuits, many of the large actuarial firms were in jeopardy of losing their malpractice insurance. In order to protect themselves, commencing in January 2002 the firms undertook a strategy to require their pension plan clients to agree not to sue them for more than $250,000 or one year's fee (whichever is greater), for any losses the plans might suffer as a result of errors made by the actuaries.

This is by no means just a technical legal issue for pension plans and their participants; the very survival of the plans can be at stake. For example, in March 2001 the actuarial firm Watson Wyatt & Company was ordered to pay more than $40 million in damages to the Connecticut Carpenters Pension Fund to make that fund whole for a series of mistakes the firm had made in determining the fund's liabilities over several years. The Carpenters Fund had only $169 million in total assets and, accordingly, the $40 million in errors had severely injured the fund and its participants.

Another large actuarial firm, Towers Perrin, has been sued by the Los Angeles County Employees Retirement Association for $2 billion in damages caused to that fund by alleged actuarial errors.

Pension fund trustees must be able to rely on the professional advice provided by their actuaries. More than any other professionals, fund trustees rely on the advice of actuaries to assure the health and well being of their funds, and their ability to continue to pay the benefits that have been promised. Trustees simply cannot rely on professional actuaries who refuse to take responsibility for the quality of their own advice.

Watson Wyatt & Company was the Actuary for the Central Pension Fund until January of this year. At that time, the firm's retainer with the Fund was up for renewal. At the Board of Trustees January meeting, Watson Wyatt demanded that the Trustees agree to limit that Company's liability to $250,000 as a condition of continued service.

Without hesitation the Board unanimously, and emphatically, rejected the proposal and directed that a search for a new actuarial firm commence immediately. A new firm will be in place by April--and it will be a firm that is willing to take full responsibility for the quality of its work.

It is the position of the CPF Board of Trustees that all pension funds must stand united in demanding that the actuarial consulting industry not be permitted to shift the responsibility for their errors onto the backs of the very participants who rely on the advice of these firms to protect their retirement security.