Alaska Retirement Plan Sues MMC Unit For $1.8B

The state of Alaska is suing Mercer Consulting for $1.8 billion claiming the firm failed to provide proper service and advice, a charge the company vehemently denies.

Mercer, a subsidiary of New York-based Marsh & McLennan Companies, parent company of Marsh insurance brokerage, was the actuarial firm for Alaska's Public Employees Retirement System and the Teachers Retirement System from the 1970s to 2006.

According to the 27-page complaint filed by the state, Mercer was responsible for calculating the funding necessary to keep its plans financially viable. The state says Mercer was negligent in not making the correct calculations and miscalculated what would be needed to keep the funds from falling into deficit.

The suit, filed in Superior Court for the state of Alaska, First Judicial District in Juneau, was announced yesterday by Gov. Sarah Palin.

"I am committed to aggressively pursuing the 'healing' of Alaska's retirement plans so the burden of the several-billion-dollar unfunded liability does not fall on the backs of ordinary citizens," said Gov. Palin in a statement. "Filing this lawsuit is an important step in that process."

The state said the two plans, which cover more than 80,000 people who are retired and actively working, has $8.4 billion in unfunded liability.

The complaint claims that Mercer failed to accurately calculate the cost of health care and incorrectly coded benefit information. That coding error led to overstating reimbursement paid by Medicare and miscalculations of contributions and other benefit payments.

In 2002, the complaint goes on to say, Milliman Inc. was asked to perform a routine audit of Mercer's work. That audit found "major errors" in the calculations. The complaint goes on to say that an internal review by a Mercer auditor agreed with the Milliman findings, but this review was kept secret from the Alaska Retirement Management Board, which oversees the plans.

In its defense, Mercer said in a statement that it "stands behind the quality of its actuarial work for the state of Alaska and will defend it interest vigorously."

Mercer went on to say that there were a number of reasons for the shortfall including the skyrocketing cost of medical costs, a downturn in the capital markets, and employees retiring earlier and living longer.

The firm said it advised the state to "significantly increase its contributions" to the systems in 2002.

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