and
are being sued by retirees over the transfer of their pensions to Apollo’s insurance and annuity division, Athene, a choice the former workers allege put their plans at risk.
The three proposed class-action suits filed this month in U.S. district courts in Massachusetts and Maryland are the first known legal challenges involving what have become big and growing business lines for Apollo and its private-equity peers.
The complaints accuse the telecom and aerospace companies of breaching their fiduciary responsibilities to a collective 127,000 retirees when they “offloaded” a total of $17 billion in pension obligations to Athene.
The transactions benefited the employers by freeing them from the expense of managing the pensions, but harmed retirees by transferring the plans to the annuities business, which faces less regulatory scrutiny and isn’t covered by federal backstops, the suits allege.
“In selecting Athene instead of the safest annuity available, defendants favored their own interest over those of the plan participants and beneficiaries,” attorneys wrote in one of the complaints.
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Two of the suits name as defendants AT&T and the financial services firm
which served as an independent fiduciary in AT&T’s 2023 deal with Athene. The suits were filed separately by different attorneys and identify different plaintiffs, but involve similar allegations.
AT&T said in a statement that it denies the allegations and will defend itself in court. A State Street spokesperson declined to comment on the suit.
Lockheed Martin is named in the third suit. Lockheed generally doesn’t comment on pending litigation, the company said in a statement.
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Athene, which isn’t named as a defendant in any of the suits, said in a statement that it believes the litigation to be without merit. “Athene is well capitalized, properly reserved, soundly invested and highly rated,” it said. “We are a safe and secure provider of annuity benefits.”
Apollo executives founded Athene in 2009 and merged the private-equity firm with the insurance offshoot in 2022. The business made Apollo a trailblazer among private-equity firms in the insurance and annuities industry, which had traditionally been the dominion of established players such as
and New York Life Insurance.
Other private-equity firms, including
and Blackstone, have since followed Apollo into the industry with their own insurance affiliates. The insurance businesses have become a key source of capital for the firms to deploy toward their investment activities.
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Insurers owned by private-equity or investment-management firms managed about $774 billion in U.S. life insurance and annuity assets, or 9% of the market, as of mid-2023, according to a December report from the ratings firm A.M. Best. That is up 3.5-fold from the end of 2017, when such firms held just 3% of the market.
Athene remains the biggest of the bunch, with about $148 billion in invested assets, according to A.M. Best.
This month’s lawsuits against AT&T and Lockheed allege that the companies’ deals with Athene violated Department of Labor guidelines under the Employee Retirement Income Security Act of 1974 that require employers to aim for “the safest annuity available” in pension transfers.
Athene, the attorneys wrote, is “substantially riskier than numerous traditional annuity providers.”
Athene and its subsidiaries have a financial-strength rating of A, or “excellent,” from A.M. Best, as does KKR-owned Global Atlantic Financial Group, which has the second most invested assets among private-equity-owned insurers. A is the third-highest rating on the firm’s scale of 12,
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Industry incumbents Prudential Financial, New York Life Insurance, and
MetLife
,
or their life and health-insurance subsidies, have ratings of A++ or A+, or “superior,” the firm’s highest and second-highest ratings.
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Private equity-affiliated insurers including Athene back policies with assets such as securitized private debt, which present greater risk than conventional assets, such as corporate bonds, that traditional insurance companies typically use to back their policies, the attorneys wrote.
Athene’s use of Bermuda-based reinsurance affiliates to secure its policies introduces additional risk because regulators there impose less stringent reporting requirements and smaller capital buffers in some cases, the attorneys wrote.
The employers also increased risk for retirees because the transfers to Athene put their pensions outside the reach of the Pension Benefit Guaranty Corp., a federally chartered organization that covers potential losses to retirees if their employers go out of business.
Annuity plans are instead covered by more limited state-level backstops, according to the suit. The employers were freed from having to pay into the federal program, but its “guarantee of plan participants’ benefits simply ended,” the attorneys wrote.
Athene said “all plan participants and beneficiaries continue to receive 100 percent of their expected benefits.”
“Our outstanding financial strength, our commitment to customer service and our well diversified investment portfolio have made us a trusted provider of choice among pension plan fiduciaries,” it said.
The Lockheed suit and one of the AT&T complaints were filed by attorneys including Jerry Schlichter of Schlichter Bogard in St. Louis, Mo. Schlichter previously won two cases before the U.S. Supreme court over what his clients argued were excessive fees on employer-sponsored retirement plans such as 401(k) programs.
Write to Jacob Adelman at jacob.adelman@barrons.com
