In recent weeks, a federal court in Maryland issued a very concerning order allowing a group of class-action plaintiffs to continue their lawsuit challenging Lockheed Martin’s decision to use Athene as the insurer for a pension risk transfer (“PRT”). Although this ruling does not mean that Lockheed Martin will ultimately lose the case on the merits, and it is only the first adverse ruling against a plan sponsor in the spate of PRT claims that have cropped up over the last year, it is a concerning defeat for Lockheed Martin and other plan sponsors across the country.
For Lockheed Martin, unless things change (which is possible, as described below), the PRT lawsuit being brought against them may now proceed to the discovery phase of litigation, which disproportionally imposes substantial costs on retirement plan sponsors. It is not expensive for plaintiffs to request discovery materials, but it is very expensive for plan sponsors to produce them. As a result, regardless of the merits of their claims, by allowing the plaintiffs to advance past the motion to dismiss, the pressures for Lockheed Martin to settle have significantly increased.
For other plan sponsors across the country who have engaged in PRTs in recent years, even from this single adverse ruling, the risk of being sued has significantly increased. While it is helpful that nearly identical claims brought against a different employer, Alcoa, were dismissed on the very same day by a court in Washington, DC, any adverse rulings against any plan sponsor necessarily invite waves of new lawsuits on similar grounds. If a law firm representing a group of class-action plaintiffs files dozens of cookie-cutter lawsuits against large retirement plan sponsors, they must only reach a settlement in a handful of those cases (or perhaps one very large case) in order to make it worth their while. Accordingly, the ruling against Lockheed Martin is very likely to encourage lawsuits from the plaintiffs’ firms who have brought the initial wave of PRT claims, as well as potential new entrants to this space.
Even though the claims against Alcoa were dismissed, that dismissal is now being challenged by the plaintiffs’ lawyers who are saying in a proposed amended complaint – without any basis at all – that Athene is substantially likely to fail in the near future. The plaintiffs’ lawyers are making this claim even though there has been no press reporting on the impending insolvency of Athene, there have been no concerning adjustments to Athene’s credit ratings, there have been no broad market reactions suggesting that Athene is likely to fail, and no regulators have been sounding the alarm about Athene’s insolvency. And yet, according to their recent court filings, the plaintiffs surmise through their own clairvoyance that Athene is likely to fail.
The plaintiffs’ lawyers have absolutely no evidence to support that allegation, raising real questions about whether they should be subject to sanctions for bad faith litigation, as recently suggested in a different context by the Supreme Court.
At this early stage of this new wave of PRT litigation, we offer five key takeaways:
Key Point #1: PRT claims are a recent trend in ERISA litigation currently being tested in the courts.
A PRT is a transfer of assets and liabilities from a defined benefit retirement plan to an insurance company. In a PRT, the employer uses the plan’s assets to purchase a group annuity contract or contracts from an insurer, who contractually agrees to make all future payments owed by the plan to former participants. A PRT may involve all of a plan’s participants or only a portion of the participant population. From 2015-2022, nearly 20% of all single-employer defined benefit plans conducted some form of PRT.
What are the allegations against plan sponsors?
Since March 2024, and beginning with AT&T, nine large employers have been sued under ERISA for engaging in PRTs – in most cases, the independent fiduciary that assisted the employer with the selection of the annuity provider was also sued. The plaintiffs in all but one of the cases are represented by Schlichter Bogard LLP.
Each lawsuit includes nearly identical allegations that, among other claims, the employers breached their fiduciary duties by: (1) choosing an insurer that is objectively too risky in the plaintiffs’ view; (2) failing to choose the “safest available” annuity provider; and (3) choosing a lower-cost insurer in an effort to maximize corporate profits, rather than acting in the interests of the affected participants. On this last point, it should be noted that the plaintiffs have admitted in their filings that they don’t have actual information about the cost of each PRT and they are speculating about the costs of available annuities. The plaintiffs’ claims are generally framed as breaches of ERISA’s fiduciary duties of prudence and loyalty, but also allege breaches of ERISA’s prohibited transaction rules, including ERISA’s prohibition against self-dealing.
In support of their claims, the plaintiffs have offered zero factual allegations regarding the fiduciary decision-making process of each plan sponsor. Instead, the complaints have only pointed to what the plaintiffs believe to be the shortcomings of the insurer that was used in nearly all of the PRT transactions that have been challenged so far – Athene. Plaintiffs believe that this insurer is especially risky, and therefore should not be selected, because it is owned by private equity, it uses an affiliated offshore reinsurer, it uses risky investments, and it is believed to have relatively low premiums. While Athene is the insurer in eight out of the nine lawsuits, it should also be noted that PRTs insured by Prudential – a company that is considered to be a more “traditional” insurer – have been targeted in the 9th case. In all of the cases, the insurer has made all payments owed to former participants.
The plaintiffs’ allegations have also pointed to the fact that defined benefit plans are subject to ERISA, whereas non-plan annuities are beyond the scope of ERISA. Also, the plaintiffs’ allegations have pointed to the fact that defined benefit plans are backed by the Pension Benefit Guaranty Corporation (“PBGC”), whereas non-plan annuities are backed by state guaranty associations (“SGAs”). In this regard, the plaintiffs are not so much challenging any employer’s individual decision to conduct a PRT, but are instead challenging the entire notion of PRTs as acceptable risk mitigation practices. This reasoning, of course, misses the mark since the decision to engage in a PRT is a settlor, rather than fiduciary, decision, and because the law actually requires PRTs as the only acceptable way for employers to exit what ERISA designed to be a voluntary retirement plan system for employers.
These new lawsuits are testing the bounds of ERISA litigation and the issue of constitutional standing. Although these issues are still fresh and emerging, it is very clear that the impact of these cases will be significant for PRTs and the defined benefit retirement plan landscape more generally.
Key Point #2: Plaintiffs can unfairly advance their fiduciary claims – even PRT claims – without alleging any flaws or mistakes in the decision-making process undertaken by plan fiduciaries.
What is apparent from the ruling in the Lockheed Martin case – and this is not something that is unique to this relatively new class of PRT claims – is that plaintiffs can advance fiduciary breach claims under ERISA without alleging any flaws or mistakes in the decision-making process undertaken by the plan’s fiduciaries. This is an untenable reality for plan sponsors seeking to minimize their fiduciary liability.
The test of fiduciary prudence is a test of process; not results. This has to be the standard of care because any other standard would impose impossible expectations on plan fiduciaries. The fiduciary standard is the highest duty known to law, but it does not require perfection with the benefit of hindsight.
What has been alarming in ERISA fiduciary litigation to date – and this has only been reinforced by the recent PRT ruling against Lockheed Martin – is that, at the motion to dismiss stage of litigation, courts have not required class-action plaintiffs to allege any flaws or mistakes in the process that plan sponsors used to reach decisions about plan management. While a thorough and comprehensive fiduciary process may be helpful at later stages of litigation, such as at trial, simple comparisons and conclusory allegations about a fiduciary’s decisions or the options that they selected have been enough to survive motions to dismiss. As noted above, this is a very troubling state of affairs because pressures to settle significantly increase after a claim survives a motion to dismiss.
The Lockheed Martin order offers an early glimpse into what this lax standard means in the context of PRT litigation. The basic claim being made by all of the plaintiffs in all of the PRT cases is that plan sponsors breached their fiduciary duties by choosing an insurer that is objectively too risky and the insurer has somehow been chosen for the benefit of the employer, as opposed to the participants. Essentially, the plaintiffs are saying that no fiduciary following a prudent process could have chosen the insurer that was selected, so the plan sponsors must have breached their fiduciary duties.
In their briefings asking the court to dismiss the plaintiffs’ claims, Lockheed Martin pointed out that ERISA’s duty of prudence is a test of process and that the plaintiffs failed to provide any evidence that Lockheed Martin’s process was somehow deficient. Relevantly, their briefs stated: “Plaintiffs are entirely silent about the process. Their only attempt to describe process is found where they simply list factors that fiduciaries must consider under [the Department of Labor]’s guidance on PRTs, Interpretive Bulletin 95-1. But parroting the 95-1 factors does not state a claim for breach of fiduciary duty under ERISA.”
And yet, despite not making any allegations regarding process, the Maryland court allowed the plaintiffs’ ERISA claims to proceed by inferring that there was some flawed fiduciary process. That is, in the absence of any factual evidence regarding Lockheed Martin’s fiduciary process, the court accepted the plaintiffs’ argument that Lockheed Martin somehow placed its own interests ahead of participant interests by engaging in a PRT and selecting a lower-cost insurer. On this, the court wrote, “Taking the facts in the complaint as true, the Court infers that Lockheed was either acting in its own self-interest or failed to make a reasonable investigation into Athene’s risk of default by selecting a cheaper, higher-risk annuity provider.” This is an alarming conclusion. Essentially, the court inferred a flawed fiduciary process based only on (1) the fact that the plan sponsor chose to engage in a PRT, and (2) the plaintiffs’ completely unsupported allegation that the insurer was chosen based on price. If that is enough to advance a claim, the motion to dismiss stage is illusory.
Key Point #3: Because a prudent process may not be a reliable defense at the motion to dismiss stage, PRT claims might well be won or lost on the issue of standing. Of particular concern, the standing requirements announced in the Lockheed Martin case set the bar far too low.
Because, for the most part, process-based defenses have wrongly been ignored by courts at the motion to dismiss stage of ERISA litigation, all of the defendants in the PRT cases have sought to also have their suits dismissed on other grounds. Specifically, they have sought to have their suits dismissed on the grounds that the plaintiffs’ claims failed to demonstrate that any plaintiffs have standing.
What is standing?
As discussed in both of the PRT orders that have been issued to date – the Lockheed Martin and Alcoa orders – standing is a constitutionally-required condition that must be satisfied before a plaintiff can bring a lawsuit in federal court. In the simplest terms, standing requires plaintiffs to demonstrate that they have suffered some injury as a result of the defendant’s conduct. The injury must be actual or imminent; not conjectural or hypothetical. Because standing comes from Article III of the Constitution, standing is often referred to as “Article III standing.”
In 2020, the Supreme Court issued an opinion specifically detailing when a participant in a defined benefit retirement plan has standing and when they do not. That case was Thole v. U.S. Bank, and in that case, the Supreme Court ruled that participants in defined benefit retirement plans generally do not have standing, and therefore can’t sustain an ERISA lawsuit against a plan sponsor, as long as they have received all benefits to which they are entitled. In Thole, every participant received their full monthly benefit from their plan, so the Court dismissed their plan mismanagement claims on standing grounds because they had no concrete stake in the lawsuit. In reaching this conclusion, however, the Supreme Court left open the possibility that defined benefit plan participants could have standing to sue if “the management of the plan was so egregious that it substantially increased the risk that the plan and the employer would fail and be unable to pay the participants’ future pension benefits.”
Why was the Alcoa case dismissed?
On March 28, 2025, the U.S. District Court for the District of Columbia issued an order dismissing the PRT claims that had been brought against Alcoa on the grounds that the plaintiffs lacked standing to sue. In explaining its order, the court ruled that the plaintiffs challenging Alcoa’s PRT selection were in the same position as the Thole plaintiffs, in that both groups had continued to receive all of the monthly benefits to which they were entitled. “Thus, even if Plaintiffs could demonstrate a failure on the part of their fiduciaries, they have not suffered an actual harm that would confer standing.” Win or lose, both groups of plaintiffs received exactly the same benefits. According to the court, all of this means that the plaintiffs did not have standing.
In addition to the fact that all of the plaintiffs have been receiving all of the benefits to which they are entitled, the court also dismissed the plaintiffs’ claims on standing grounds because Alcoa’s selection of Athene to be the PRT insurer did not substantially increase the risk that the plaintiffs would eventually experience some concrete injury, a standing argument that the court was willing to entertain. After recognizing the material differences between a claim involving a participant’s ongoing benefit in a defined benefit plan and an individual’s rights with respect to a PRT insurer, the court ruled that the plaintiffs’ theory of standing failed because they never alleged that Athene is substantially likely to fail. Rather, they simply alleged that Athene was “at a greater risk of failure than its competitors.” According to the court, the plaintiffs were required to allege both a substantially increased risk of loss and a substantial probability of loss in order to establish standing under the law that applies in the DC Circuit.
In multiple instances, the court supported its conclusions by citing to key language from the Thole decision, ruling that “there is no ERISA exception to Article III” standing requirements. Thus, even if Alcoa had technically violated ERISA and even if any injury would not materialize until after the statute of limitations had passed, the court ruled that those circumstances could not overcome the need for Article III standing, which it found was lacking from the plaintiffs’ complaint.
The conclusions reached by the court in the Alcoa case make sense, leave open the possibility for plaintiffs to seek recourse if they are likely to experience an injury or there is a substantial probability of an injury, and if universally adopted, would avoid a wave of litigation second guessing the decisions of every employer who engages in a PRT. Unfortunately, as discussed below, the Alcoa order was not the only recent order ruling on PRT standing questions.
Why did the Lockheed Martin case advance?
On the same day that the Alcoa case was dismissed, the U.S. District Court for the District of Maryland issued its own order allowing nearly identical PRT claims to proceed against Lockheed Martin.
Through its first few pages, the order in the Lockheed Martin case is very similar to the order in the Alcoa case. It describes the PRT landscape, discusses the procedural history of the case, reviews relevant authorities from the Department of Labor, and explores the judicial standards for establishing standing, including the Supreme Court’s decision in Thole. In this regard, like the Alcoa order, the order in the Lockheed Martin case stated that standing could be established by showing that Lockheed Martin’s PRT decisions substantially increased the risk that the plaintiffs would eventually experience some concrete injury.
Where the court got it wrong, however, was that, unlike the Alcoa court, the Lockheed Martin court ruled that it was enough for plaintiffs to merely show that the risk of not receiving benefits had substantially increased, and that the plaintiffs were not required to show that such a risk was likely to occur. The consequences of such a low bar are troubling. Assume, for example, that the chances of the plaintiffs not receiving their benefits increase from .1% to 1% by reason of the PRT. That is a 900% increase, which is clearly substantial. But a 1% chance of harm is clearly not the type of egregious threat of future harm that the Supreme Court was willing to consider as a substitute for actual harm.
In this regard, the court ruled that the “Plaintiffs have adequately alleged facts, if only barely so, sufficient to conclude there is a ‘substantially increased risk’ that Athene will fail and Plaintiffs’ will suffer harm because of it.” To support this position, the court pointed to the failure of the Executive Life insurance company from 30 years ago (nothing in the last 30 years – that alone is enough to show that the court is wrong), Athene’s private equity ownership, and its offshore reinsurance structure. Additionally, although such factors do not impact Athene’s default risk, the court also suggested that it saw the lack of PBGC coverage as relevant in finding standing for the plaintiffs. As discussed above, this factor is beside the point when evaluating fiduciary decisions.
Independent of these findings on standing, the court in the Lockheed Martin case also said that the plaintiffs could sustain a standing challenge for other very concerning reasons. That is, even if the plaintiffs could not show an individualized financial injury, they could establish standing by simply showing a technical breach of ERISA’s fiduciary duties and seeking an equitable remedy, which the plaintiffs have done. The problem with this approach, however, is that it fails to account for the language from Thole – as recognized in the Alcoa order – that “there is no ERISA exception to Article III” standing requirements. Thus, even though the plaintiffs might not have been harmed and their benefits may not be affected, the court’s ruling would allow them to circumvent the standing requirements and seek equitable relief. It is difficult to square this result with a plain reading of the standing requirements laid down by Thole.
Is Lockheed Martin appealing the ruling?
After the Maryland court ruled in favor of the plaintiffs, on April 14, 2025, Lockheed Martin filed a motion asking the district court for permission to immediately appeal its order denying Lockheed Martin’s motion to dismiss. This procedure is known as an “interlocutory appeal.” Interlocutory appeals face tough odds and require the district court and appeals court to agree to the appeal.
In our view, the courts should allow this interlocutory appeal because, as noted, the real objective of the plaintiffs’ lawyers is to survive a motion to dismiss, making a denial of such a motion similar to a final judgment in a conceptual way. However, appeals are generally disfavored at this stage of litigation as a matter of judicial economy. The idea is that it would be inefficient if appeals courts could second guess every early ruling and order from the lower court. In the case of ERISA litigation, however, this creates additional settlement pressures for plan sponsors who lose a motion to dismiss. While they can technically appeal the ruling and ask for a stay of the proceedings, these challenges are rarely successful.
Key Point #4: Plaintiffs are already experimenting with unfounded and aggressive allegations to overcome their standing problem.
Following the dismissal of their initial lawsuit, the plaintiffs in the Alcoa case sought leave to refile an amended complaint on April 25, 2025. While this type of action is relatively routine following an early dismissal, what is remarkable about this instance is just how aggressively the plaintiffs have recast their arguments in order to take another shot at their standing problem.
In order to satisfy the standing requirements set forth by the DC court in its initial dismissal, the plaintiffs have moved well beyond their simple allegation that Athene is riskier relative to other annuity providers in the market. Instead, they are now alleging that “Athene is substantially likely to fail, or at minimum, to be forced to interrupt it payments, causing a financial loss to Plaintiffs and the class.” The amended filings even go so far as to say that Athene is likely to fail “in the near future.”
This is a remarkable allegation because the plaintiffs are effectively saying that they alone have been able to surmise that Athene is in such bad financial condition that it is “likely” to fail in the near future or at least be forced to interrupt payments. While similarly situated plaintiffs represented by the same law firm have not been making that argument in other lawsuits challenging the selection of Athene, the Alcoa plaintiffs are seriously making this argument in a Hail Mary attempt to satisfy standing.
As noted, we are not aware of any press reporting on the impending insolvency of Athene. We have not seen any concerning adjustments to Athene’s credit ratings. We have not seen any broad market reactions suggesting that Athene is likely to fail. And we have not seen regulators sounding the alarm about Athene’s likely default. Also, if this were the case, wouldn’t the plaintiffs bring these facts to the court’s attention? And yet, according to their recent court filings, the plaintiffs surmise through their own clairvoyance that Athene is likely to fail.
This knee jerk reaction and clear attempt to dress up previously unsuccessful allegations should be rejected by the court. Moreover, in the wake of the instructions included in the Supreme Court’s recent decision in the case of Cunningham v. Cornell, additional actions should be considered to deter plaintiffs from making such aggressive and unfounded claims.
In the Cunningham opinion, the unanimous court ruled that, in the ERISA litigation context, when a plaintiff and his counsel lack a good faith basis for their argument, Rule 11 sanctions should be considered. Rule 11 of the Federal Rules of Civil Procedure permit federal courts to sanction attorneys who make frivolous and baseless court filings. Most relevant to the Alcoa case, this includes sanctions for filings that lack evidentiary support and will continue to lack evidentiary support even after an opportunity to investigate.
While we appreciate that the Supreme Court was specifically considering these sanctions in the context of prohibited transaction claims, bad faith is bad faith, and there is no reason why unfounded and speculative claims in the PRT cases should be treated any differently. Thus, in the Alcoa PRT case, Rule 11 sanctions would seem to be something that the court itself and defense counsel should be strongly considering. If the plaintiffs are willing to say anything to get past the motion to dismiss, courts need to step in. This type of frivolous litigation is not without costs and should not be allowed to continue undeterred.
Key Point #5: The Lockheed-Alcoa split is emblematic of broader trends in ERISA litigation. This unfortunately means we expect to see an increase in PRT filings.
Other than the different circuits and different reviewing judges, there is very little to distinguish the facts and allegations involved in the Lockheed Martin and Alcoa cases. And yet, as discussed earlier, the courts reached two very different results.
As we have seen over the years, these opposite outcomes are all too common in the ERISA litigation sphere and, overall, split rulings are a win for the plaintiffs’ bar. As was the case with the excessive fee and underperformance claims, the in-house plan litigation, the forfeiture allocation claims, and to some extent, the actuarial equivalence claims, even a few settlements can invite dozens of copycat lawsuits. The is especially true in the case of large plan sponsors, but even smaller and medium sized employers are not immune, though they may not be early targets.
Unfortunately, we anticipate that the early victory for the plaintiffs in the Lockheed Martin case will follow this all too familiar pattern and invite many more new filings against plan sponsors who have directed PRTs. Unless the Supreme Court forcefully steps in, as it did years ago in the case of stock drop litigation, Congress acts, or the Department of Labor recognizes the seriousness of this harmful litigation, this pattern is likely to continue for PRT litigation and other novel claims that can be tested and refined by the plaintiffs’ bar.
