Magistrate Judge Recommends Dismissal of AT&T PRT Suit

A magistrate judge recommended the dismissal of a consolidated pension risk transfer complaint filed against AT&T Inc. and State Street Global Advisors last year, based on the complaint’s failure to state a claim for breach of fiduciary duty.

The consolidated case stemmed from two class action complaints filed against AT&T and State Street in U.S. District Court for the District of Massachusetts in March 2024. The complaints alleged that AT&T’s selection of Athene Annuity and Life. Co. as the insurer to take over the AT&T plan’s liabilities—via an $8.05 billion pension risk transfer—put AT&T’s 96,000 retirees in danger and that State Street, AT&T’s independent fiduciary, stood to benefit.

Both suits represented former plan participants. The plaintiffs in the first suit filed in March 2024, Piercy et al. v. AT&T Inc. et al., are represented by Libby Hoopes Brook & Mulvey P.C. The second suit, Schloss et al. v. AT&T Inc. et al., was filed four days later, with Schlicher Bogard LLP representing the plaintiffs.

The cases were then consolidated, and the defendant firms each filed a motion to dismiss. U.S. District Judge Nathanial Gorton referred the case to U.S. Magistrate Judge Paul Levenson in February for a report and recommendation on the motion. Gorton will still need to confirm Levenson’s recommendation, and objections to the report are due September 12.

Issue of Standing

According to Levenson, the U.S. Supreme Court case relevant to the issue of standing was Thole v. US Bank, which found no standing for defined benefit plan participants for a breach of fiduciary duty because the breach had not caused the participants to lose any benefits.

But the Supreme Court left open the possibility that plaintiffs might have standing “if the mismanagement 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,” according to the recommendation. Levenson found that such a “substantially increased risk” was enough to trigger standing and that such an increase was sufficiently alleged by the plaintiffs, based on allegations that Athene was substantially riskier than other insurers.

However, Levenson found there was no basis to conclude that Athene’s annuities were riskier than other insurers’ annuities in the context of a fiduciary breach allegation. This finding led to a mixed result: The plaintiffs have standing to sue but did not sufficiently allege a fiduciary breach.

“The complaint does not endeavor to identify which of these companies may be apt comparators,” Levenson stated. “Nor does it spell out the ways these companies may differ from, or be similar to, Athene.”

Other Claims

Levenson also disregarded the plaintiffs’ claims about the harms of PRTs in general.

“The complaint itself is difficult to parse,” the magistrate judge wrote. “It is cluttered with extended discursions about the asserted evils of permitting employers to satisfy their pension obligations by purchasing annuities: a policy judgment that has no direct bearing on any of Plaintiffs’ legal claims.”

Among other allegations dismissed include: that AT&T saved money by entering into a PRT; that State Street selected Athene for at least 10 times different PRT deals to bolster its reputation as an independent fiduciary that saves plan sponsors money; that pre-existing relationships among employees of AT&T, State Street and Athene created disloyalty in the annuity selection process; that State Street acted disloyally due to its ownership interests in AT&T and Apollo Global Management, Athene’s parent company; and that Athene was chosen imprudently.

Levenson also dismissed the plaintiffs’ service provider prohibited transaction claim based on AT&T hiring State Street, finding that the prohibited transaction only applies to hiring an existing service provider, which State Street was not. The service provider prohibited transaction claim based on AT&T buying annuities from Athene was also dismissed on the rationale that Athene was not a preexisting service provider and that a sale of annuities is not a service.

The plaintiffs’ conflict of interest prohibited transaction claims were also dismissed, as Levenson reasoned that AT&T acted as a settlor, not a fiduciary, when it contracted Athene to provide annuities.

Kent Mason, a Washington, D.C.-based partner in Davis & Harman LLP—which was not involved in the legal action—expressed concern that the magistrate’s findings that the plaintiffs did have standing might be the most significant outcome for future complaints.

“The problem with this mixed result is that courts have been extremely lenient on the issue of whether plaintiffs have sufficiently alleged a fiduciary breach, so the magistrate’s reasoning on this point may not be used by other courts,” Mason wrote in an emailed response to questions. “So, losing the standing issue here is problematic.”

AT&T declined to comment on the magistrate’s report. State Street could not be immediately reached for comment. O’Melveny & Myers LLP and Nutter McClennen & Fish LLP represent AT&T. Goodwin Procter LLP represents State Street.