Mercer Settles Lawsuit With Alaska Retirement Management Board for $500 Million

Mercer Inc. said it will pay $500 million to settle litigation brought by the Alaska Retirement Management Board on behalf of two Alaska benefit plans, relating to work in the period 1992 to 2004.

The initial amount of the suit was $1.8 billion and later increased to $2.8 billion, Mercer spokesman Charles Salmans said.

The state of Alaska claimed the company's mistakes as actuary of its pension funds contributed to an $8.4 billion shortfall. Mercer, a subsidiary of Marsh & McLennan Cos. (NYSE: MMC), was the actuary for Alaska's Public Employees' Retirement System and Teachers' Retirement System pension from the 1970s until it was replaced in 2005. The lawsuit claimed that Mercer miscalculated the pension plans' expected liabilities, particularly in assessing the plans' future health-care costs, and that the company made basic errors in computing and entering statistical information in computer models (BestWire, Dec. 7, 2007).

Mercer, which denies liability in the matter, decided a settlement was in the best interests of the company and its stakeholders because of the uncertainty of the outcome of a jury trial in Juneau; the complex technical nature of the claims; and the high amount of damages being sought.

"When you're talking about actuarial calculations, even if you have a bright lay jury, it's still a lay jury trying to figure out what actuaries do and how they make calculations," Salmans said. In addition, in Juneau, a city with a population of about 30,000, many residents have a family member who is a public employee covered by retirement plans, he said.

The settlement resolves all claims against Mercer by the ARMB and the State of Alaska. Of the $500 million being paid, $100 million will be covered by insurance, Mercer said in a statement.

Marsh Inc. was the second-largest broker by 2008 brokerage revenue, according to Best's Review's Top Global Brokers ranking.

In afternoon trading on June 14, shares of Marsh & McLennan Cos. were selling for $22.84, up 3.44% from the previous close.

(By Caroline Saucer, editor, BestWeek: [email protected])