On Friday, the specialty consulting wing of Marsh & McLennan Companies Inc. (MMC), Mercer, announced that it has reconciled all existing issues with the Alaska Retirement Management Board (ARMB). The retirement board had claimed damages of at least $2.8 billion and treble this amount of penalties, for multiple fraudulent trade practices claim, attorneys’ fees, costs and interest, against the company. Mercer has now agreed to resolve by paying $500 million to ARMB.
Briefing on the issue, in December 2007, ARMB had filed the litigation against Mercer charging the latter of intense professional negligence, miscalculation of public pension benefits, misrepresentation and fraudulent trade practices related to actuarial services provided in connection with two State pension and benefit plans.
This was followed by a modified complaint, filed in May 2009, wherein the state agency added complaints that the management executives were aware of the multiple errors and consciously tried to conceal them. However, the company’s appeal to dismiss the case was denied in December 2009 and a trial was scheduled on Jul 6, 2010 in Juneau.
Conversely, in an uncertain outcome, on Jun 11, MMC’s Mercer came out with a settlement option, in a self-denial mode, whereby it agreed to pay $500 million, of which $100 million will be covered by insurance. The payment is expected to be made within the next couple of months.
We believe that the reconciliation initiative taken up by Mercer has saved MMC from a major financial and reputation loss that could hound the company if the trial had taken place and allegations proved against the company. Following this resplendent settlement, MMC can now trigger back to its ongoing restructuring of business processes that include rightsizing business by vending off its redundant operations.
With the abatement of the ARMB’s litigation risk, MMC along with Mercer can now freely focus on accelerating and increasing its operating leverage for long-term core growth.
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