Mercer Hit by $2.8 Billion Lawsuit - Analyst Blog

On Dec 17, 2009, Mercer (US) Inc., a unit of Marsh & McLennan Companies Inc. (MMC) was sued by the Alaska Retirement Management Board (state agency) for making significant errors while estimating its liabilities for pension plans. Mercer is a human resource consulting firm, also doubling as an actuarial consultant for Alaska 's Public Employees' Retirement System (PERS) and Teachers' Retirement System (TRS) pension plans.
 
The lawsuit filed in the state superior court in Juneau has alleged Mercer of employing faulty suppositions and techniques to compute future health care costs and pension benefits. Mercer professionals working on this project seemingly made inaccurate calculations of funds more than $1.8 billion, which were supposedly to be utilized in the state’s pension plan and health care schemes.
 
Moreover, the state has also indicated that Mercer has consciously committed multiple other technical mistakes that are not pardonable as billions of dollars were at risk. This is not expected of a firm housing such professionally qualified and experienced personnel.
 
In its most recent quarterly filing, Mercer did not record the liability related to the Alaska case as it failed to determine whether the loss was both probable and justified. Incidentally, the Board of Mercer has acknowledged its flaws and error of not disclosing it in the quarterly filing. If the state agency of Alaska wins the case, Mercer could be hooked for misconduct and unethical operations, with penalty worth threefold the damage.
 
The consulting business of Marsh & McLennan is already posing symptoms of a negative trend due to the ongoing economic turmoil that resulted in client attrition. At such a time, the Mercer lawsuit could weigh heavily not only on the company’s corporate rapport but also on the earnings as the case is liable to draw out substantial funds as penalties to the state of Alaska.
Read the full analyst report on "MMC"
Zacks Investment Research