The federal court hearing City of Providence v. Buck Consultants has now ruled on Buck's motion to dismiss and will allow the City's case to go forward. As I noted when discussing this case last month, Buck had moved to dismiss the complaint on grounds that the City could not have relied on Buck's work
The district court denied Buck's motion stating:
While the $10 million discrepancy constituted only a small percentage of the system's total liabilities, that is not really the point. The City claims that the error was significant enough to affect its decision to enter into an agreement with its unions and retirees. This is sufficient to survive a motion to dismiss.
This is just the opening salvo of the case. In a motion to dismiss, the court is only deciding whether the complaint filed by the plaintiff contains sufficient allegations to state a legal claim. The court has not decided whether the City will actually be able to prove its allegations. The actuaries will still have the chance to develop their case through discovery and would appear to have strong arguments that the City's damages are speculative at best.
One of the real challenges in defending actuarial malpractice cases like this one is effectively making the argument — "yes, we made a mistake, but it did not really cause any damage." Judges and juries have a tendency to think — if there was a mathematical mistake and costs or liabilities were underestimated, then there must be some sort of damage. This case is another example of that tendency.
As we see here, calculating the costs or savings from proposed changes to the provisions of a defined benefit plan is one of the higher risk activities for an actuary in the pension discipline.
Read the full decision here.
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