University of Pittsburgh Medical Center and its subsidiary UPMC Altoona are suing Cleveland-based professional business services provider CBIZ Inc. and others for allegedly understating the liability of the Altoona unit's $121 million pension plans.
On July 1, 2013, UPMC acquired Altoona Regional Health System in a transaction in which it agreed to acquire all of its liabilities, including its pension and benefit plan liabilities as of June 30, 2013; invest $250 million in the Altoona unit over 10 years; and contribute $10 million to Altoona's foundation.
In a lawsuit filed in U.S. District Court for the Western District of Pennsylvania, Johnstown, on Sept. 16, UPMC alleges that, from 2002 through February 2015, the defendants — CBIZ Inc., subsidiary CBIZ Benefits & Insurances Services Inc. and now-retired CBIZ actuary Jon S. Ketzner — served as actuarial consultants for Altoona Regional's two largest pension plans. From at least July 1, 2008, through February 2015, the defendants allegedly failed to adhere to actuarial standards of practice and materially erred in valuing the obligations and liabilities of Altoona's pension benefit plans for funding, compliance and accounting purposes.
The suit alleges that as of June 30, 2014, the defendants' multiple errors caused the Altoona plans' projected benefit obligation to be falsely stated on Altoona's balance sheet as $240 million, when it was in fact $373 million.
Until March 2015, these alleged errors were undisclosed and unknown to Altoona and UPMC managements.
When UPMC purchased Altoona Regional, it relied on the actuarial valuations prepared by defendants for the year ended June 30, 2012, which understated Altoona's pension expense for that year — and vastly overstated Altoona's profitability — by at least $18 million, according to the lawsuit.
The defendants' failure to value the Altoona plans in accordance with actuarial standards of practice materially changed Altoona's overall financial picture such that, had the true state of affairs been known, UPMC likely would not have acquired Altoona, or in the very least, would have negotiated and structured a different deal for Altoona, the suit said.
Moreover, the suit alleges that due to defendants' professional malpractice over a period of many years in valuing Altoona's pension plans, Altoona was unable to administer those plans properly, such as by implementing plan freezes or otherwise limiting benefits, which would have been statutorily required had the correct plan valuations been known, and would have reduced the plans' liabilities.
Finally, the lawsuit said as a result of the defendants' material breaches of their duties to UPMC and Altoona, UPMC and Altoona are likely to incur other financial losses in the form of far greater contributions to the plans, as well as penalties, interest and premiums payable to regulatory agencies such as the IRS and Pension Benefit Guaranty Corp. resulting from defendants' massive understatement of the liabilities.
The plaintiffs seek $142 million plus punitive damages.
Michael Gleespen, CBIZ general counsel, said in an e-mail that the firm "can’t comment on the allegations in the complaint" but plans “to vigorously contest the litigation."