DALLAS (CN) - Verizon is dumping its pension obligations to 41,000 retired managers at the end of the year and transferring them to Prudential, "simply to enhance its corporate credit rating," retirees say in a federal class action.
Lead plaintiff William Lee, on behalf of beneficiaries of the Verizon Management Pension Plan, sued Verizon Communications and five affiliates, and The Prudential Insurance Company of America, in Federal Court.
Verizon announced in October that it will no longer provide pensions to its 41,000 management retirees and that Prudential will provide them insurance annuities instead.
The plaintiffs say this "unprecedented" action violates the Employee Retirement Income Security Act and protections under the Pension Benefit Guaranty Corporation.
"Verizon, one of the most financially successful U.S. corporations, intends to 'de-risk,' or abandon, its long-term responsibility for financing and paying the pension obligations of 41,000 retirees, simply to enhance its corporate credit rating" the 40-page complaint states.
"Verizon is taking advantage of the group of retirees least able to defend themselves. Verizon is not engaging in the same or similar action with respect to nonmanagement employees or those management retirees formerly represented by unions."
Verizon executive vice president and general counsel Randal Milch called the lawsuit meritless.
"Verizon's actions regarding its pensions protect the interests of our retired management employees," Milch said in a statement. "The monthly pension benefits of the retirees receiving an annuity from Prudential will remain unchanged. Prudential is providing an irrevocable commitment to make all future annuity payments, and this promise will be supported by the extra protection of assets being placed in a separate account at Prudential dedicated to Verizon retirees."
The plaintiffs disagree with a letter sent them by Mark Reed, Verizon's chief administration officer and chairman of the benefits committee, which calls the move is legally permissible under the plan.
"To the contrary, Verizon's proposed transaction violates the controlling terms of documents establishing and governing the Verizon Management Pension Plan, constitutes a breach of ERISA's fiduciary duty requirements, violates ERISA's prohibition on discriminatory and intentional interference with retirees' rights under a pension plan and ERISA, and undermines congressional intent to provide American pensioners with a uniform safety net under the auspices of PBGC," the complaint states.
The plaintiffs say that making Prudential the lone insurer to issue the annuities puts them at risk if Prudential is faced with "some future unexpected and catastrophic event that could place many retirees and their beneficiaries in potential financial ruinous circumstances."
"Verizon's annuity transaction with Prudential is one of the largest in U.S. history," the complaint states. "Verizon and Verizon EBC's decision to shirk their responsibility for plan funding necessary to support 41,000 management retirees and place all of that funding responsibility under the auspices of a single insurer runs counter to ERISA's cardinal charge that fiduciaries 'diversify the investments of the plan so as to minimize the risk of large losses.'"
The retirees add: "Prudential is not too big to fail. If the current economic situation has taught retirees anything, it is that the funded status of a behemoth insurer can change in an instant and cause devastating economic harm for the whole country." The plaintiffs seek declaratory and injunctive relief for ERISA violations.
They are represented by Robert Goodman with Kilgore Kilgore of Dallas.
In his statement, Verizon's general counsel noted that Prudential "already provides pension plan services to 3.7 million workers and retirees nationwide."
"An independent fiduciary conducted an extensive review of the insurance market and annuity providers and selected Prudential as the annuity provider, with the safety and protection of pension plan participants being the sole consideration," Milch added.
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