State sues for $1.8 billion over benefits

Attorney general files suit against former actuary to recover losses

Posted: Friday, December 07, 2007

The state of Alaska has filed a $1.8 billion lawsuit against the company it says is one of those responsible for an $8.4 billion shortfall in funds to pay employee retirement benefits.

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The state is claiming that Mercer, which it hired as an actuary to advise it on issues such as how much money it needed to put away for its public employee and teacher retirement plans, badly underestimated the amount. The state said Mercer even made math errors in its calculations.

"Fully aware of the billions of dollars at stake, Mercer nevertheless made fundamental errors in methodology and even in basic calculations, and failed to assign competent, experienced personnel to work for the plans," the state's suit said.

The suit was filed Thursday in Juneau Superior Court by Attorney General Talis Colberg on behalf of the Alaska Retirement Management Board.

The company accused in the suit was formerly known as Mercer Human Resources Consulting. It is a subsidiary of Marsh & McLennan Companies, a global consulting firm with revenues of $12.5 billion last year.

Mercer late Thursday issued a statement denying any wrongdoing and stood behind its work. It said it would fight the suit vigorously.

Company officials blamed the retirement systems' funding problems on skyrocketing medical costs and the fact that employees are retiring earlier and living longer than anticipated.

"The state is now attempting to hold Mercer accountable for these economic trends, over which our firm has no control," it said.

State officials said those trends were what they hired Mercer to predict for them.

Mercer spokesperson Stephanie Poe said the company, beginning in 2002, advised the state to significantly increase its contributions to the retirement systems.

The Department of Law has retained the law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP of New York City and Lessmeier & Winters LLC of Juneau for the case.

The Alaska Department of Law asked the Legislature for $12 million to fund a lawsuit against Mercer, but some legislators balked at the cost and did not appropriate the money.

Instead, the state retained the firms on a contingency basis, which could result in the firms getting a percentage of any winnings or settlement.

At the time, state Rep. Mike Hawker, R-Anchorage, said he thought the state's suit had little chance of success. He likened it to suing the weatherman over a bad forecast.

Rep. Beth Kerttula, D-Juneau, an attorney who formerly worked for the Department of Law, praised the decision to file suit Thursday and said she thought the state had a strong case.

"The Attorney General's Office is convinced it was malpractice, and it takes a lot to get them convinced of that," she said.

The state's retirement plans cover more than 80,000 current and former employees of the state and 220 municipal governments around Alaska.

The additional cost of the unfunded liability increases the cost to the state and most of those governments each year.

The most recent estimate of the unfunded liability is from June 30, 2006, and legislators say they fear costs are continuing to rise, increasing that amount to closer to $10 billion.

Kerttula praised the decision of Gov. Sarah Palin to file the suit.

"Let's go get our retirees' money back," she said.

• Contact Pat Forgey at 523-2250 or

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