Costly Actuarial Errors Alleged in New Provider Lawsuit

Plaintiffs in a newly filed lawsuit argue inaccurate liability valuations have resulted in costly pension plan management mistakes. 

By John Manganaro | September 23, 2016
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Plaintiffs in the latest example of retirement plan litigation claim a contracted pension actuary failed to accurately assess forward-looking pension liabilities, resulting in more than $100 million in alleged damages.

UPMC is a Pennsylvania non-profit corporation, organized and operated for charitable purposes and recognized by the Internal Revenue Service (IRS) as exempt from federal income taxation pursuant to Section 501(c)(3) of the Internal Revenue Code. UPMC operates health care facilities in and around Pittsburgh, Pennsylvania; the organization is also the parent and supporting organization for numerous other non-profit health care providers, each existing as a separate and distinct corporate entity,

Plaintiff UPMC Altoona is one such subsidiary of UPMC, court documents show. Until July 1, 2013, the Central Pennsylvania Health Services Corporation (CPHSC), also a non-profit Pennsylvania corporation, owned 100% of the membership interest in Altoona, which was then known as Altoona Regional Health System. Other than its membership interest in Altoona, CPHSC owned no other material assets or interests, according to plaintiffs.

On July 1, 2013, CPHSC merged into Altoona; UPMC acquired Altoona Regional Health System; which was immediately re-named “UPMC Altoona.” As part of the acquisition of Altoona, UPMC agreed to acquire all of Altoona’s outstanding assets and liabilities, including its pension and benefit plan debt. UPMC is currently the sole corporate member of Altoona.

The plaintiffs allege that, from 2002 through February 2015, defendant CBIZ Benefits & Insurance Services served as actuarial consultants for UPMC Altoona’s two largest pension benefit plans (an individual actuary and the CBIZ parent corporation are also named in the suit).

“In this capacity, defendants represented that they were experienced, qualified, and capable in the actuarial valuation of pension benefit plans,” the complaint suggests. “Each year, defendants prepared actuarial valuations of the plans’ benefits to allow Altoona to fund the plans in compliance with regulatory requirements; to certify the funded status of the plans in order to allow for the plans’ operation and administration; to file PBGC premiums; and to account for the plans in its financial statements in accordance with generally accepted accounting standards.”

CBIZ was paid substantial fees to perform this work, plaintiffs add, yet “during the course of this engagement, from at least July 1, 2008 through February 2015, defendants failed to adhere to actuarial standards of practice and consequently materially erred in valuing the obligations and liabilities of Altoona’s pension benefit plans for funding, compliance, and accounting purposes … Defendants’ multiple errors caused the Altoona Plans’ Projected Benefit Obligation (PBO) to be falsely stated on Altoona’s balance sheet at $240 million. In fact, Altoona’s PBO was then $373 million: Defendants had understated the liability by approximately $132.5 million.”

NEXT: Details from the complaint