DALLAS (CN) - A federal judge certified a class of Verizon retirees who challenged the company's transfer of more than $8.5 billion in assets and dumping of 41,000 federally protected pensions into annuities.
Verizon Communications announced the purchase of the annuity plan in October 2012. C. William Jones, president and executive director of the Association of BellTel Retirees Inc., says the pension money has been transferred into an account containing funds from other companies.
"We have no idea the health of that particular account," Jones said Monday. "How well funded are the other annuities that are comingled with ours? We will get no reports on the health of that part of the Prudential business."
Lead plaintiff William Lee, on behalf of beneficiaries of the Verizon Management Pension Plan, sued Verizon, five of its affiliates and Prudential in November 2012.
The plaintiffs said the "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 stated. "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."
Making Prudential the lone insurer to issue the annuities puts retirees 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," according to the complaint.
"Prudential is not too big to fail," the action stated. "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."
U.S. District Judge Sidney Fitzwater ordered the certification on March 28, certifying one class of 41,000 management retirees who are now receiving annuity payments from The Prudential Insurance Co. of America.
The judge also certified a second class of 50,000 retirees who did not have their pensions transferred to Prudential and claim Verizon improperly used plan assets to pay excessive costs and expenses. They say the company should have paid these costs out of operating revenues, not pension plan funds.
In both classes, Fitzwater said that the numerosity of the plaintiffs made joinder of all members impracticable.
The beneficiaries warned in a statement Monday what would happen if Prudential or a successor experiences a default. In that scenario, the previous protections would be replaced by a "patchwork network" of underfunded, insurance-industry-controlled state guaranty associations, according to the statement.
"Insurance annuities are backed only by insufficient and varying coverage - generally determined by state of residence at the time of impairment - from $100,000 - $500,000 (lifetime per person cap)," the statement added. "Guaranty associations in eight states and one U.S. territory limit total lifetime coverage for annuity holders to a maximum of $100,000; 28 states go up to $250,000 lifetime coverage; 10 states and District of Columbia use a $300,000 ceiling; and just four offer a ceiling of $500,000."
The plaintiffs say no other corporation has transferred already retired persons from an ERISA-protected and PBGC-guaranteed pension plan into a group insurance annuity while keeping the pension plan ongoing for others.
"This case is likely to be closely watched by employee benefits leaders at thousands of companies across America, with the outcome impacting the management of trillions of dollars in ERISA protected pension assets, clarifying plan sponsor and plan fiduciary obligations, and underscoring the rights of plan participants," said plaintiffs' attorney Curtis Kennedy in Denver on Monday.
The plaintiffs seek declaratory and injunctive relief for ERISA violations. They are also represented by Robert Goodman with Kilgore Kilgore in Dallas.
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