A.G.: State likely to win retirement suit

Alaska Retirement Management Board seeking billions from consultant

Posted: Wednesday, November 11, 2009

Alaska legislators who had earlier been skeptical of the state's attempt to win damages from the actuarial consultant Mercer are saying they may have a better case than they originally thought.

Attorney General Dan Sullivan is calling some of the information they've turned up about Mercer's actions "amazing," and said he expects Alaska to win the case.

The Alaska Retirement Management Board is suing Mercer, seeking actual and punitive damages of as much as $9 billion, accusing the company of knowingly providing bad cost estimates to the state.

Retirement officials said that led them to contribute less to their public employee and teacher savings funds, leaving them billions short of the projected needs for pension and health care for the next 25 years.

State pensions are guaranteed, however, and the state government will have to find the money elsewhere to pay the retirement costs.

Mercer denies the allegations and is promising to fight the claims, said Stephanie Poe, spokeswoman for Mercer.

"Mercer will defend its interests vigorously," Poe said.

The Alaska Department of Law spent $850,000 investigating the case, and then sought $12 million from the Legislature last session to prosecute.

Assistant Attorney General Mike Barnhill told the Legislature that they had a strong case, but top finance committee legislators balked at funding the lawsuit. Some likened it to suing a weatherman for a bad forecast or suing a fortune teller.

Instead, they recommended that Alaska seek an outside law firm to take the case on a contingency basis, meaning the firm would front the cost of the suit and take a share of the winnings.

Alaska originally filed suit in December 2007, but amended its complaint in May 2009 with additional information accusing Mercer of professional negligence for errors in its actuarial calculations. Then, it said, Mercer employees compounded the errors by hiding them from the state after it knew about them.

Alaska's attorneys found that information while doing pre-trial discovery for the case, Sullivan told legislators.

"We have had experts who have said this is one of the most amazing cases that they've seen," Sullivan said.

Mercer's parent company, Marsh & McLennan Companies Inc., warned in a quarterly report filed with the Securities and Exchange Commission on Tuesday that Alaska was seeking "amounts that could, if awarded, be significant."

Marsh had revenues of more than $10 billion last year.

Rep. Mike Hawker, R-Anchorage, co-chair of the House Finance Committee, had initially been skeptical of the case. After learning what the state had found, he called the discovery "pretty incredible."

"My confidence in a positive outcome or an affirmative outcome has increased immensely," Hawker said.

Hawker had earlier questioned Sullivan of his use of the word "fraud" to describe Mercer's conduct.

"I don't throw those terms around lightly," Sullivan responded.

Sullivan said the state's law firm, Paul, Weiss, Rifkind, Wharton & Garrison of New York, was "stunned" at the extent of what they'd found.

Alaska's lawsuit alleges professional negligence and malpractice, breach of contract, unfair trade practices, fraud and other claims.

The case is scheduled for trial this summer.

• Contact reporter Pat Forgey at 523-2250 or patrick.forgey@juneauempire.com.

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