Plaintiffs Timothy Scott, Patricia Gilchrist, Karen Fisher, Helen Maldonado-Valtierra, Dan Koval, Judy D. Duff, John Griffin, Kenneth Rhodes, Judy Dougherty, John Kelly, Richard Walshon, Jennifer Fryer, and Vince Carabba alleged that Defendants AT&T Inc., the AT&T Defined Benefit Plan, and AT&T Services, Inc. (collectively AT&T) have violated the Employee Retirement Income Security Act of 1974 (ERISA).
Apparently, AT&T Defined Benefit Plan (the Plan) did not calculate and disburse “Joint and Survivor Annuities” (JSA) in a manner consonant with ERISA. Plaintiffs said that the Plan failed to treat JSA and Single Life Annuity (SLA) participants in an actuarily equivalent fashion by using “mortality assumptions” that are “fifty years out of date,” which resulted in the “payment of a benefit that is less” than the JSA beneficiaries were entitled to.
In response, Defendants filed a motion to exclude the opinions of Plaintiff’s proffered expert, Ian H. Altman, under Rule 702.
Actuarial Expert Witness
Ian H. Altman is a Fellow of the Society of Actuaries and an Enrolled Actuary. He was the founding partner and manager of Altman & Cronin Benefit Consultants, which was established in 1996. His firm merged with Gallagher Benefit Services, Inc. in 2016. Since his separation from Gallagher in 2020, he has worked as an independent consulting actuary in the employee benefits field.
AT&T said that Altman’s opinions about the Plan’s conversion factors’ failure to achieve actuarially equivalent results is unreliable because his preferred methodology assertedly did not establish the “bottom” of the range of actuarially equivalent results, and the claim that his methodology is “conservative” rests on no more than ipse dixit.
However, the Court held that Altman relied on his decades of experience and reliable evidence about industry practice to opine that the Plan’s conversion factors do not generate actuarially equivalent JSA benefits because the underlying assumptions are outdated and unreasonable.
For Altman’s methodology for calculating “damages,” AT&T said that there are several discrete mistakes that render his opinion unreliable. However, Plaintiffs emphasized guidance in the Actuarial Standards of Practice (ASOP), published by the Society of Actuaries, that provided that an actuary may apply “judgmental adjustments or assumptions” where “accurate and complete [data] may not be available” so long as the use of such adjustments or assumptions is disclosed.
Altman adequately explained and disclosed the adjustments and assumptions he made when dealing with what he reasonably believed to be deficient data, and AT&T did not demonstrate those assumptions were so outlandish that no reasonable actuary would make them.
Altman also explained why, based on his experience, the pop-up benefit should not be considered, because it is a benefit separate from the JSA benefit that offers “no value to the surviving beneficiary.”
AT&T’s final objection goes to Altman’s inclusion of participants who received benefits in the form of both a partial lump sum and JSA is not grounds for exclusion, as the contention at bottom is not about his methodology’s reliability but about whether the resultant JSA benefits are “qualified” or subject to the statutory actuarial equivalency requirement despite the partial lump sum election.
Held
In conclusion, the Court denied the Defendants’ motion to exclude the opinions of Plaintiff’s proffered expert, Ian H. Altman, without prejudice to renewal at trial as to specific calculations, as the evidence and circumstances warrant.
Key Takeaway:
Altman’s opinions are grounded in evidence and sound actuarial methods and therefore will be put through the crucible of vigorous cross examination at trial.
Plaintiff Michael Ruiz (“Ruiz”) is suing his former employer, Defendant Magellan Financial & Insurance Services (“Magellan”), under the theory that his alleged demotion and subsequent termination were due to his race and national origin and that he was also subjected to a hostile work environment.
Ruiz retained an expert, Michael J. Stokes (“Stokes”) of Beta Business Consulting LLC (“Beta”), to calculate the net present value of his lost wages and benefits. Magellan, however, filed a motion to exclude the expert testimony of Stokes.
Economics Expert Witness
Michael J. Stokes earned an MBA from the Isenberg School of Management at the University of Massachusetts Amherst with a focus in entrepreneurship. He has been employed as a litigation-related economic expert for 6 years at Beta Consulting.
Magellan argued that Stokes is unqualified because “his financial or accounting training concerned issues related to capital and corporate investment, and no other topics” and “he has no other certifications or licenses, and no publication history.”
Analysis
The Court held that Stokes is qualified to offer opinions about the net present value of Ruiz’s purportedly lost wages and benefits. First, Stokes’ opinions are “within the reasonable confines of his subject area.” Stokes holds an MBA from the University of Massachusetts, where he took classes on management, supply-chain management, entrepreneurship, finance, and basic economics.
As for the “finance and accounting” portion of his studies, Stokes studied “[a]nything from investment to just looking at capital investment, corporate investment.” These areas of study appear to encompass the opinions set forth in the report. Although Magellan may be correct that Stokes’ credentials are not highly specialized, the absence of specialization goes to the weight of Stokes’ testimony and did not provide a basis for exclusion.
Second, Stokes’ experience also forms part of the basis for his qualification to testify as an expert. Stokes is an “economic analyst” for Beta, where he has worked since 2018, and is now the full owner of the company. Before assuming ownership, Stokes was trained by the founder and previous owner, Larry Stokes (his father), who has a Ph.D. in economics. In addition to being trained and advised by his father, Stokes “occasionally reviews” trainings from the National Association of Forensic Economics (“NAFE”), a standards-setting association for forensic economists of which he is a member.
Relevance
Magellan next argued that Stokes’ testimony is not relevant because it does not consider the relevant factors in an economic damages calculation “such as back pay or mitigation” and only “seeks to estimate what [Ruiz] might have earned from Magellan had he not been terminated.”
Analysis
Stokes’ report purported to calculate the net present value—$3,729,078—of the wages and benefits Ruiz would have earned had he remained employed by Magellan until his retirement. Although this figure likely overstated Ruiz’s economic damages, as it made no attempt to account for offsets and mitigation, it was still at least one piece of the puzzle.
Magellan contended that even if relevant, Stokes’ testimony would be confusing, misleading, and/or prejudicial because Ruiz “claimed that Stokes’ calculation represents his damages.” In essence, Magellan argued that a jury would be confused by the difference between Stokes’ economic earnings projection and “economic damages,” which are calculated by incorporating a variety of figures, including mitigation. The problem with this argument is that although Ruiz has at times during this case appeared to characterize the report as showing his economic “damages,” the report itself did not purport to calculate Ruiz’s litigation damages and Stokes did not suggest as much in his deposition. In fact, he clearly stated the opposite.
Moreover, Ruiz clarified in his response brief that the report did not purport to establish his damages and will simply “be helpful to the jury to determine [Ruiz’s] damages.”
As a result, the Court will not categorically exclude Stokes’ opinions before trial based on Rule 403.
Reliability
Magellan’s final argument for exclusion is that “Stokes’ opinion is not reliable because it did not comply with his own assumptions.” Specifically, Magellan contended that Stokes “assumed that generally an employee’s earnings peak mid-career, and then ‘tend to’ decline toward the end of the employee’s working life.” The opinion that Stokes offered, however, assumed that [Ruiz’s] earnings would continue to increase through the end of his working life.
Analysis
The Court held that Magellan’s reliability-based arguments did not provide a basis for exclusion because the report is based on clear and accessible data, including Ruiz’s responses to a questionnaire, Ruiz’s W-2s from 2018-2023, publicly available government data, and scholarly research—all of which Stokes disclosed throughout the report.
In each section of the report, Stokes also explained his methodological approach. By disclosing his methodology and the data on which his analysis relies, Stokes’ calculations may be retested, refined, and challenged. This ability to be tested—also known as falsifiability—is a hallmark of the scientific method and a factor that courts may consider in testing for reliability.
Additionally, the Court is sufficiently convinced that Stokes’ methods are “generally accepted in the scientific community.” The record indicated that Stokes devised his methods in compliance with NAFE, a professional standards-setting organization for forensic economists.
Magellan argued that Stokes’ approach is unreliable because he failed to adhere to his own assumption by not lowering Ruiz’s projected wages closer to retirement. However, Stokes merely stated that a late-career decrease in earnings “often tends” to occur but that this tendency “is affected by a worker’s age, sex and level of educational attainment.” Given these caveats and qualifications, there was nothing inherently contradictory and unreliable in Stokes’ decision to assume that Ruiz’s earnings would not decrease over time.
For the same reasons, exclusion is not warranted based on Magellan’s contention that Stokes relied on other “unreliable assumptions.” As an initial matter, Stokes’ decision to use industry averages of similarly situated persons to quantify Ruiz’s projected health and retirement benefits, instead of basing the calculation on Ruiz’s actual health and retirement benefits, is not clearly unreliable. Magellan offered no authority suggesting that such an assumption is per se unreliable.
Held
The Court denied Magellan’s motion to exclude the testimony of Plaintiff’s expert Michael J. Stokes.
Key Takeaway:
Although an expert’s “failure to follow his own general practice” is a methodological flaw that may provide a basis for exclusion, the Court is not persuaded that Stokes engaged in such a failure here. Stokes merely stated that a late-career decrease in earnings “often tends” to occur but that this tendency “is affected by a worker’s age, sex and level of educational attainment.”
Class Representatives Peter Trauernicht and Zachary Wright (“Plaintiffs”), on behalf of themselves, the Genworth Financial Inc. Retirement and Savings Plan (the “Plan”), and all other similarly situated individuals, filed suit against Genworth Financial, Inc. (“Genworth” or “Defendant”) alleging that Genworth breached its fiduciary duties under the Employee Retirement Income Security Act.
Plaintiffs claimed that Genworth violated its fiduciary duties under ERISA by failing to appropriately monitor, and as a result, imprudently retaining the BlackRock LifePath Target Date Funds (“BlackRock TDFs”) in the Plan despite their significant underperformance. According to Plaintiffs, the retention of the BlackRock TDFs caused the Plan to incur substantial losses.
Genworth produced two expert reports in response to Plaintiffs’ experts. Genworth retained Lorie L. Latham to offer opinions regarding the Plan’s governance structure and monitoring process. Latham opined that the Plan’s governance structure and monitoring processes of the BlackRock TDFs were reasonable and consistent with widely accepted retirement plan fiduciary practices.
Genworth also retained Dr. Russell R. Wermers who explained that the BlackRock TDFs are economically reasonable investments once you account for their specific risk-balancing strategies and features, including their asset allocations and glide paths.
Finance Expert Witnesses
Russell R. Wermers is the Paul J. Cinquegrana ’63 Endowed Chair in Finance at the Smith School of Business, University of Maryland at College Park. Wermers’ research focuses on analyzing investment strategies of professional asset managers, including how to properly measure the risk-adjusted performance of such strategies. He has published in academic and professional journals on investment fund performance evaluation, equity strategies, the drivers of mutual fund and hedge fund investor flows, and the behavior of institutional investors. He has also previously testified as an expert on numerous ERISA cases involving 401(k) and other defined contribution plans.
Lorie L. Latham is the founder and president of L. Latham Consulting, LLC, an independent consultancy where she provides financial and strategic advice to financial firms and retirement plan fiduciaries, boards, and committees. Before that, Latham served in senior executive and consulting roles advising on strategies and investment selection for defined contribution plans. That work involved guiding plan fiduciaries in establishing reasonable and appropriate governance and monitoring practices for their defined contribution plans. Latham has also co-authored numerous publications, including articles on defined-contribution plan governance decision making.
Whether Wermers and Latham Have Specialized Knowledge That Will Assist the Trier of Fact under Rule 702(a)
Wermers’ Qualifications and Opinions
Plaintiffs argued that Wermers lacked the relevant qualifications to address the issues in this case because he has no experience with retirement plan investing, including the monitoring responsibilities of investment fiduciaries governed by ERISA. He has never served as a fiduciary nor advised a retirement committee.
The record does not provide, and the Court does not see, any reason why an expert must be trained in fiduciary monitoring or ERISA, as opposed to general investment theory, to testify on the relative performance and comparability of various target date funds to aid the trier of fact in the determination of whether the BlackRock TDFs violated the Plan’s Investment Policy Statement’s (IPS) criteria.
The fact that Wermers’ offers more generalized opinions on the BlackRock TDFs and their comparators rather than opinions directly tied to fiduciary monitoring goes to the weight rather than admissibility of his testimony.
Latham’s Qualifications and Opinions
Plaintiffs also argued that Latham did not have specialized expertise or knowledge that will assist the trier of fact. Plaintiffs said that her experience came from generalized personal observations and work experience while consulting with plan sponsors and discretionary fiduciaries.
The Court found that, based on that experience, Latham has the requisite qualifications to assist the trier of fact regarding plan governance and fiduciary monitoring standards. The degree of connection between her experience and her opinions goes to the weight of her testimony. At trial, Plaintiffs will have the opportunity to cross-examine Latham on the relevancy of her experience and how that experience has informed her opinions.
Whether Latham’s and Wermers’ Opinions Are Supported by Reliable Principles and Methods
Whether Wermers’ Economic Reasonableness Analysis is Based on Reliable Principles and Methods
Plaintiffs argued that Wermers’ assessment of “economic reasonableness” is not based on any method or discipline recognized within his industry, and instead, is based on his own subjective view of what represents an “attractive combination” between risk and return.
The Court disagreed. Plaintiffs’ complaint is essentially that Wermers’ concept of “economic reasonableness” is not reducible to a rigid, rules-based methodology. However, a formulaic methodology is not required for a witness to offer an expert opinion. Wermers relied on his specialized knowledge and experience to offer guiding principles on how to evaluate and compare the performance of target date funds, and he applied those principles to the BlackRock TDFs under a standard he calls “economic reasonableness.”
Wermers explained that an “economically reasonable” investment is one that “offers ex-ante an attractive combination of risk and return” based on its “qualitative and quantitative characteristics and its investment strategy.” Rather than a term of art, economic reasonableness is just another way of saying an investment is reasonable from an economic perspective.
Plaintiffs did not challenge the reliability of any of Wermer’s specific analyses or conclusions, only that his overarching concept of “economic reasonableness” lacked clear guiding rules and principles.
The Court found that Wermers’ opinions are reliable because he thoroughly articulated his specialized knowledge on the evaluation of target date funds with supporting citations to peer-reviewed articles and other industry sources, and then he applied that knowledge in evaluating the “economic reasonableness” of the BlackRock TDFs and in criticizing Marin’s analyses.
Whether Latham’s “Accepted Fiduciary Practices” Analysis is Based on Reliable Principles and Methods
Plaintiffs argued that Latham’s testimony is unreliable because her opinions on “accepted fiduciary practices” are based on her work experience with unspecified clients rather than any specified method or discipline recognized within her industry. Her failure to explain how her opinions derive from those client experiences, without other guiding industry standards, makes her testimony unreliable according to Plaintiffs.
However, the Court is satisfied that Latham has the requisite experience to provide reliable experience-based opinions on the topics she addresses at this stage.
Second, Plaintiffs claimed that Latham’s opinions are unreliable and unhelpful ipse dixit because she did not rely on any objective, consistent, or rules-based analytical approaches for what she calls “accepted fiduciary practices.”
The Court held that rules-based standards are not necessary for an expert’s opinion to be the product of reliable principles and methods, particularly when the testimony is not scientific in nature. Latham explained that “there’s not a written checklist” of accepted practices and “[p]lan governance structures vary, depending upon the size and culture of the plan sponsor, the type of plan, and other factors.”
Consequently, in her report, Latham reviewed the specific practices of the Genworth Committee from the evidentiary record, and explains whether, in her professional experience, those individual practices comport with the typical industry practices she has observed over her decades-long career. Latham is permitted to rely on her experience to testify in that capacity. The Court held that Plaintiffs’ concerns over the objectivity of Latham’s opinions and the specific experiences on which she relies can be addressed on cross-examination and with contrary evidence.
Whether Latham and Wermers Reliably Applied Their Principles and Methods to the Facts of the Case
Whether Wermers Reliably Applied His Principles and Methods to the Facts of the Case
Plaintiffs argued that Wermers failed to fully consider the IPS in his analysis and relied on other data that was cherry-picked and never relied on by the Plan’s fiduciaries. According to Plaintiffs, that made Wermers’ analysis irrelevant to whether the Plan’s fiduciaries acted prudently in retaining the BlackRock TDFs. Plaintiffs also claimed that Wermers ignored discrepancies between his data and the data presented in materials provided to the Genworth Committee.
The Court held that Wermers was primarily retained to offer an opinion on whether the BlackRock TDFs were an “economically reasonable” investment and to rebut Marin’s conclusions, particularly those based on his ex-post performance comparisons of the BlackRock TDFs to other funds and benchmarks. Therefore, Plaintiffs’ criticisms about “the lack of references to the Plan’s Investment Policy Statement does not undermine the reliability of [Wermers’] methodology” because that methodology was not predicated on evaluating the BlackRock TDFs’ performance against the IPS’s criteria.
For the same reasons, it was not problematic for Wermers to have relied on external data which was not provided to the Genworth Committee. For instance, Wermers looked at third-party analyst ratings of the BlackRock TDFs as well as the BlackRock TDFs’ prevalence in the broader retirement plan market to demonstrate that Marin’s views on the BlackRock TDFs’ performance were not widely held among the industry. The Court held that using such data was not irrelevant or unreliable “cherry-picking.”
When Plaintiffs said that Wermers ignored discrepancies between his data and the data presented to Genworth’s Committee, the Court held that it would seem appropriate for Wermers to use that data if Plaintiffs’ own expert also used it.
Whether Latham Reliably Applied Her Principles and Methods to the Facts of the Case
Plaintiffs argued that Latham failed to sufficiently consider the Plan’s IPS in forming her opinions. According to Plaintiffs, Latham stated that the Plan’s IPS was merely a non-binding, guiding document even though the Plan’s fiduciary counsel provided advice to the Genworth Committee that the IPS was a binding, Plan document.
Plaintiffs did not dispute that Latham reviewed and relied on the IPS in forming her opinions. Instead, Plaintiffs disagreement was over Latham’s understanding of the IPS’ effect.
Since, the dispute appeared to be over what constituted a violation of the IPS, not whether the IPS is a legally binding plan document or not. The Court held that just because the Plaintiffs disagreed with Latham’s understanding of the IPS’ effect did not mean she failed to reliably apply her methods to the facts of the case.
Whether The Testimony Is Admissible Under Rule 403
Plaintiffs argued that Wermers’ and Latham’s testimony should also be excluded under Rule 403 because it threatens to mislead or confuse the issues for the same reasons already discussed.
Having found Wermers’ and Latham’s testimony to be admissible under Rule 702, the Court also finds that their testimony is generally admissible under Rule 403 for the reasons discussed. Moreover, in a bench trial, the risk that an expert’s testimony will be unduly confusing or misleading is much lower and excluding evidence under Rule 403 for such reasons is generally not appropriate.
Held
The Court denied Plaintiffs’ motion to exclude opinions and testimony of Lorie L. Latham And Russell R. Wermers, Ph.D.
Key Takeaways:
Wermers’ opinions are reliable because he thoroughly articulated his specialized knowledge on the evaluation of target date funds with supporting citations to peer-reviewed articles and other industry sources. Also, Plaintiffs’ concerns over the objectivity of Latham’s opinions and the specific experiences on which she relies can be addressed on cross-examination and with contrary evidence.
Case Details:
Case Caption:
Trauernicht, Et Al. V. Genworth Financial Inc., Et Al.
Plaintiffs bring this suit under the Employee Retirement Income Security Act (ERISA).
ERISA’s central object is to “protect employees’ justified expectations of receiving the benefits their employers promise them.” This case centers on the Coastal Transition Benefit, a benefit formula that originated in the Coastal Plan and that, through a series of corporate transactions, now appears in the Plan. Plaintiffs alleged the Coastal Transition Benefit formula improperly accrued benefits over participants’ entire careers rather than over their first 30 years of service in violation of various provisions of ERISA.
As the Court knows, two of Plaintiffs’ claims—Claims I and VI—center on Plaintiffs’ contentions that the Coastal Transition Benefit formula is impermissibly backloaded and that the Plan’s actuarial factors used to reduce benefits for commencement before normal retirement date are unreasonable.
Defendants sought to exclude the testimony of Plaintiffs’ expert Michael L. Libman as unreliable under Federal Rule of Evidence 702. Plaintiffs offered Libman as an expert on benefits under ERISA’s accrual rules and “actuarial equivalent” reductions.
Pensions Expert Witness
Michael Libman has been a pension actuary for over forty years. In that time, he has testified as an expert on pension issues in many cases.
Libman’s expert reports supported Claims I and VI and his testimony is based upon a close read of statutory rules, Treasury Regulations, applicable legal precedent and authority, the Plan document, and relevant documentation provided by Defendants.
Based on his read of the Plan provisions, Libman’s report set forth actuarial calculations to assess whether the Plan complies with ERISA’s anti-backloading and actuarial equivalence provisions.
The Court held that while some of Libman’s interpretations of the Plan are perhaps open to question, there is no issue with the reliability of his testimony in general.
Held
The Court denied the Defendants’ motion to exclude the testimony of Michael Libman.
Key Takeaway:
After reviewing the parties’ filings and Libman’s testimony, the Court finds that Plaintiffs have shown, by a preponderance of the evidence, that Libman’s testimony is reliable. In so finding, the Court notes that the Daubertinquiry does not require district courts to assess whether an expert’s testimony is correct; courts need only determine whether the testimony is reliable.
Case Details:
Case Caption:
Pedersen Et Al V. Kinder Morgan, Inc. Et Al
Docket Number:
4:21cv3590
Court:
United States District Court for the Southern District of Texas, Houston Division
