Pension Plan Participant Sues over Alternative Investments

April 27, 2011 ( – A recently filed lawsuit claims that Weyerhaeuser Company, its investment managers, and other fiduciaries to its pension plans breached their fiduciary duties by over investing the plans assets in alternative investments.

According to the complaint, a Master Trust held assets of the Salaried Plan and the Hourly Plan totaling approximately $3.75 billion in net assets as of December 31, 2009, of which more than 81% were in alternative investments (including 53% in hedge funds and 24% in private equity). The complaint says the Master Trust held approximately 330 different hedge funds, private equity investments, and real estate funds, and contends it was nearly impossible for the defendants to properly manage the risk of 330 alternative investments to ensure that such investments resulted in no more risk than the targeted benchmark. 

The suit, filed in the U.S. District Court for the Western District of Washington, contends that the defendants sought higher returns to improve the company’s financial statements, not to benefit the participants of the plans, by either lowering the company’s pension costs or increasing its pension income, which would improve the company’s bottom line and earnings per share.   

Employee Michael Palmason claims that in order to justify the company’s assumption that the return on pension assets would outperform the market, the defendants adopted and implemented an investment policy that utilized a portable alpha strategy and bet on risky alternative investments, such as hedge funds and private equity, to generate the alpha (or excess return). According to the complaint, this inappropriately risky investment strategy caused Weyerhaeuser’s pension plan assets (including the assets of the Master Trust) to fall from being overfunded by $2.1 billion at the end of 2007 to being underfunded by $450 million just one year later.  

The suit says defendants also breached their fiduciary duties of prudence by failing to perform adequate due diligence. “[G]iven the shear number of alternative investments…, it would be prohibitively expensive and time consuming for the Defendants to perform adequate due diligence on each of its 330 alternative investments,” the complaint says.  

The class action seeks to recover losses to the plans for which defendants are personally liable pursuant to the Employee Retirement Income Security Act, and seeks other equitable relief from defendants, including, without limitation, injunctive relief and, as available under applicable law, constructive trust, restitution, equitable tracing, and other monetary relief.  

The case is Palmason v. Weyerhauser Co., W.D. Wash., No. 2:11-cv-00695.