Settlement proceeds bolster retirement savings

Posted: Tuesday, August 17, 2010

The Alaska Retirement Management Board decided Monday to put most of Alaska's portion of a $500 million settlement with Mercer Inc., into the Public Employees Retirement System's Health Trust Fund.

Alaska sued Mercer, a subsidiary of Marsh & McLennan Companies., claiming billions in damages from faulty actuarial projections made by Mercer.

Alaska's attorneys said Mercer failed to accurately anticipate the state's rise in health care costs, in part by failing to use their health care actuaries to make the estimates. Later, they said, Mercer covered up errors for fear of losing Alaska's business and knowingly provided the board with faulty estimates the subsequent year.

Monday, in a special meeting, the board decided to put the bulk of the ground-breaking actuarial malpractice settlement into the PERS Health Trust Fund, which was hit with most of the unanticipated cost increases.

State officials said Mercer's errors did not cause the state's costs to increase, but they delayed when it was able to take action to respond.

"I guess I'm astounded at how poor the service was from the Mercer corporation," Sam Trivette of Juneau, vice-chair of the board, said Monday.

"I'm glad we were able to settle this, but it makes you want to read every word twice," he said.

March & McLennan continued to deny liability even when they agreed to settle, but issued a statement saying the company doubted it could get a fair trial in Juneau.

That increased the size of the state retirement plan's unfunded liability, the difference between what state savings are expected to be able to pay and expected plan costs.

The ARM Board's decision Tuesday was to place about 89 percent of the settlement proceeds into the PERS Health Trust Fund and 11 percent into the Teacher Retirement System Trust Fund.

The estimates were based on how much each of the funds was damaged by the flawed advice, said Mike Barnhill, an attorney with the Alaska Department of Law.

The settlement was paid to the state a week ago, he said.

A small amount of money from the retirement trust funds was used to pay for preliminary work on the lawsuit, but when the Alaska Legislature balked at paying for the case, the Department of Law hired the law firm of Paul, Weiss, Rifkind, Wharton & Garrison on a contingency basis.

Paul, Weiss will get about $97 million of the settlement, leaving $403 million for the state retirement funds.

• Contact reporter Pat Forgey at 523-2250 or

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