The U.S. 2nd Circuit Court of Appeals upheld a district court decision to dismiss a complaint against the New York State Teamsters Conference Pension and Retirement Fund.
In Carlisle v. The Board of Trustees of the American Federation of the New York State Teamsters Conference Pension and Retirement Fund, the 2nd Circuit affirmed that the pension plan did not violate its fiduciary duty by investing in high-risk private market ventures. The ruling also cleared the plan’s financial adviser, Meketa Investment Group Inc., and actuary, Horizon Actuarial Services LLP, of any wrongdoing.
Though the 2nd Circuit found that the plaintiffs had standing to sue and acknowledged that private assets had more risk, it also determined that the investment did not breach fiduciary duty under the Employee Retirement Income Security Act.
“The complaint alleges that the fiduciaries were aware of the notable risk, volatility, and illiquidity associated with such asset classes. And it asserts that other, similarly situated ERISA plans favored stabler investments,” the ruling stated. “But those allegations do not indicate that the Plan fiduciaries did more than engage in the normal practice of weighing ‘tradeoffs’ and selecting from a ‘range of reasonable judgments’ in the circumstances.”
Case Background
In 2020, the plaintiffs alleged in a complaint filed in U.S. District Court for the Northern District of New York that the New York State Teamsters’ pension board, along with Meketa and Horizon Actuarial Services, had “imprudently” adopted a risky investment strategy in 2014 in response to the pension fund’s declining funding status. According to the complaint, the fund, which managed $1.5 billion in 2018, had increased its actuarial return target to 8.5% from 8%. This change came alongside a significant rise in the fund’s exposure to riskier assets, such as private equity and emerging market equities.
A 2016 peer analysis of large multiemployer plans revealed that the average allocation to alternative investments was 13%. In stark contrast, the New York State Teamsters pension fund had allocated 19.9% of its assets solely to private equity, as stated in the complaint. The plaintiff, Robert Carlisle, contended that the aggressive investment strategy had resulted in significant losses and subsequent benefit reductions for him and other plan participants. His lawsuit sought a permanent injunction to prevent the pension fund from continuing its risky allocations.
Chimicles Schwartz Kriner & Donaldson-Smith LLP, Bayard P.A., and Blau & Malmfeldt represented the plaintiffs. Morgan, Lewis & Bockius LLP, and Blitman & King Law Firm represented the New York State Teamsters. Snell & Wilmer LLP, Steptoe LLP and Choate, Hall & Stewart LLP represented Meketa; and Groom Law Group represented Horizon.
The board of trustees of the fund reported that in 2022 and 2023, the fund received approximately $1.4 billion in special financial assistance from the Pension Benefit Guaranty Corporation under the American Rescue Plan Act. As of January 2024, the total assets of the plan, including this special assistance, exceeded $2.9 billion. However, the plan also reported $3.7 billion in liabilities, which means it was 79.4% funded.
Tags: Alternative Assets, portfolio risk