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The Actuary The magazine of the Institute & Faculty of Actuaries

Mercer sued for almost £1bn

The state of Alaska filed a $1.8bn (£900m) lawsuit against Mercer (US) Inc, claiming the company’s mistakes as actuary of its pension funds contributed to an $8.4bn shortfall. Mercer 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 claims that Mercer miscalculated the pension plans’ expected liabilities, particularly in assessing the plans’ future healthcare costs, and that the company made basic errors in computing and entering statistical information in computer models.

These errors, the suit claims, contributed to the current shortfall in the plans. “Just like any other professional, Mercer was required to use due care, skill and diligence in advising the state how to keep its retirement plans financially sound,” Alaska attorney general Talis Colberg said in a statement announcing the suit, which was filed in the Alaska Superior Court in Juneau. “When it came to calculating expected healthcare costs for the plans, and in other areas, Mercer failed to meet those standards and caused a significant part of the current unfunded liability of the plans.”

In the suit, the state said it did not realise that it had a problem until a routine audit by an outside firm raised concerns about errors, and particularly that Mercer was significantly underestimating future healthcare costs. In a statement issued after the suit was filed, Mercer said the company “stands behind the quality of its actuarial work for the State of Alaska and will defend its interests vigorously”.