US - Pension fund investment consultants risk being sued for failing to consider strategies which only later became common if a lawsuit against Mercer gains traction.
However, Mercer has said it will vigorously defend the allegations, accusing the fund of "attempting to fix blame where none exists".
It has filed a motion asking the court to throw out the pension fund's claims, which is pending.
Marc H. Rifkind, principal at law firm Slevin & Hart, P.C, which is representing the pension fund, said the pension fund had two major allegations, one relating to Mercer's alleged failure to properly monitor the performance of a fund manager, the other relating to its recommendations to trustees on the plan's investments.
He said it was alleged that when Mercer presented the findings of its asset liability study in 1998, it recommended a more aggressive strategy in terms of investment allocation, which resulted in the plan taking more risk.
He said: "Our position is that in 1998 the plan was fully funded and when they presented its asset liability study, rather than come back and tell the trustees of the plan to take on more risk, they should have told the trustees they had the money to go out and buy bonds to match their liabilities. They didn't do that.
"A prudent investment consultant should have recommended - or at least discussed with trustees - the option of immunising the portfolio from investment risk, and thereby guaranteeing they would have sufficient assets to pay out benefits when they became due."
He continued: "It's akin to the doctor who says to you, 'there is a great cancer treatment, we know it's very effective, but many people aren't recommending it right now'."
The pension fund is estimated to have lost at least US$60m in the period disputed, and as a result became underfunded to the extent it had to ask the Internal Revenue Service for an extension of the amortisation schedule. . .
In a statement to Global Pensions, Mercer said: "As explained in our motion, the longshoremen fund's lawsuit against Mercer Investment Consulting (MIC) focuses on the fund's investment performance during a bear market, a period during which this plan, like most pension funds at the time, experienced a decline in assets due to overall market conditions.
"The recommendations we made to the fund were not unusual and included an unexceptional change from 50% equity exposure to 60% in 1998. The Longshoremen Fund, through this litigation, seeks to retain all the investment gains from that asset allocation and at the same time to pin any decreases in assets resulting from that allocation on Mercer.
"This is despite the fact that the fund trustees, not Mercer, made all investment decisions, including decisions concerning asset allocation and risk, after the trustees had received quarterly and other reports about investment performance and risk.
"The trustees also met with money managers on their own, made decisions to increase benefits without MIC's knowledge and unilaterally halted the search for a replacement money manager."
Mercer also claimed the minutes of the trustees' own meetings reflected the fact trustees were aware of what they were deciding and knew that seeking higher returns might require greater risk.
It said: "Notably, had the trustees continued with the strategy recommended by Mercer, the plan would have performed better than the strategy the Longshoremen Fund now retrospectively proposes it should have been taken over the relevant time period.
"Finally, the Longshoremen Fund's suggestion that Mercer should have recommended an asset-liability matching strategy that, at the time, was untested, controversial and utilised by no other similarly situated plan, lacks any merit."
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