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The pension fund for Connecticut’s carpenter unions seemed to be in good shape between 1991 and 1998, until Baltimore-based Watson, Wyatt & Co. sent a new actuarial group to New Haven from its Wellesley, Mass., office. The new team realized from the first day in late 1998 that things were seriously wrong, and took steps to correct them. But the damage was done. Watson Wyatt, one of the world’s largest actuarial and consulting firms, agreed it had to pay for the losses from its miscalculations. But just how big those losses were became a multimillion-dollar federal case. Attorney Lewis R. Clayton, who led the fund’s federal court bid, said that for those seven years, the actuary’s reports “said we were completely on track, and that we had incurred only a modest amount of debt. “In fact, we had a crushing amount of debt,” Clayton said. The complex trial before Senior U.S. District Judge Ellen Bree Burns lasted 16 days. Clayton persuaded a federal jury in New Haven to award the fund $32 million in damages to compensate its 6,600 beneficiaries. The award carries an additional $8 million in interest. The jury deliberated just four hours, said Clayton, a litigation partner at New York’s Paul, Weiss, Rifkind, Wharton & Garrison. In his opening statement Clayton compared the pension fund to a family planning for college with a financial expert. By analogy, the trustees of the pension fund had to know how much to save and how much they could spend currently and still meet targets. In the college-planning example, if the expert miscalculates, the family can’t go back in time and change past decisions, Clayton explained in an interview. “You can’t go back and make the decision to have worked overtime, or to not have one spouse stay home, or not to have built the addition to the kitchen.” Peter Biagetti of the Boston office of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo represented Watson Wyatt, one of the nation’s largest actuarial companies. He gave the jurors a formula that would peg damages between $3 million and $10 million, he said. “I told the jury that the case was not about the mistakes, that they had been reported and admitted by Watson Wyatt. It was about a couple of other things: What is the damage to the fund? What would it take to restore the fund to the condition it was in prior to the mistakes?” Biagetti said he was trying to give the jury a straightforward way to measure that loss. “What did they promise, or spend that they would not have promised, or spent had they not had incorrect estimates? That’s fairly easy to grasp. But how you translate that into a number for possible costs into a variable future, that’s the trick.” The Watson Wyatt formula projecting damages did not credit the carpenters with being able to negotiate for higher contributions at the collective bargaining table, Clayton said. The pension fund’s damage model assumed that, had the trustees known their fund’s true financial picture, it could have increased revenues by winning greater employer contributions — not just save money. The Watson Wyatt model assumed the fund would have been able to save money by reducing some benefits, but did not credit it with ability to negotiate new revenues, Clayton said, adding, “I don’t think that was very credible to the jury.” The actuarial firm countered the carpenters’ claims with two other issues, Biagetti said. There was a question whether the fund and its staff should be found liable for not giving complete and accurate information to the actuaries. In addition, dueling experts debated the reasonableness of Watson Wyatt’s assumption about mortality rates. Clayton said the ex-Watson Wyatt actuary responsible for the miscalculations, Charles Austin, chose to keep using an old mortality table for the carpenters, even while updating his smaller pension fund clients to newer tables, to ease the shock of a sudden cost hike to the smaller groups. Periodically, new mortality tables are created that reflect increased life spans. Good news for longevity can be bad news for pension fund costs, and the newer tables required more reserves. Clayton says that Austin’s explanation for using older tables with the $160 million carpenters’ fund was that it would be able to absorb “a surprise” better than a smaller pension fund client. Clayton, the carpenter fund lawyer, said, “My clients were definitely not prepared to absorb this surprise.” The fund’s actuarial expert was Daniel Arnold, of Hartford’s Hooker & Holcomb. Watson Wyatt tapped Vincent Amoroso, an actuary at the Washington, D.C., offices of Deloitte & Touche. Joining Biagetti on the defense team were Joseph P. Messina and Benjamin Hincks. Clayton’s team included partner Daniel J. Laffell and associates Jeremy M. Creelan, Carrie Corcoran and Shelly J. Klein. Lawrence Lissitzin of Hartford’s Reid and Riege was local counsel.

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