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Konya v. Lockheed Martin Corporation

Lockheed Martin made a business decision to have its pension plan transfer benefit liabilities to an insurance company. The Department of Labor in 1995 issued guidance on how fiduciaries should select an insurance company in such circumstances. The guidance was, in part, a response to the failure of Executive Life Insurance Company, a large insurance company that became insolvent in the early 1990s. Under the guidance, a fiduciary who is selecting an insurance company to take over plan liabilities must choose the “safest available” insurer.

Lockheed Martin caused the plan to contract with Athene Annuity and Life Company, a relatively new insurer that is owned by a private equity firm and is thought by some industry observers to be riskier than several other companies. The plaintiffs brought a lawsuit arguing that the plan fiduciaries involved failed to select the safest available annuity, saving the plan, and indirectly itself, money, while offloading the risks posed by its choice to the participants whose benefits were transferred. The defendants filed a motion to dismiss, arguing that plaintiffs have suffered no harm since their benefits are still being paid, that Athene was a suitable company, and that ERISA did not prohibit a plan fiduciary from taking cost to the plan into consideration.

The Pension Rights Center, along with the National Retiree Legislative Network, filed an amicus brief, which provided a history of the practice of benefit liability transfers and argued that Lockheed Martin failed to provide the safest available annuity and transferred to the participants an insurance contract that because of the extra risk was less valuable than their benefits.