Judge Lets Verizon Move Pension Duties to Insurer

     DALLAS (CN) – Verizon transferred pension obligations for 41,000 retired managers to Prudential Insurance because a federal judge found that the move would not diminish benefits.
     In an Oct. 17 agreement, Verizon Communications settled approximately $7.5 billion of pension plan liabilities by purchasing a single premium group annuity contract from Prudential. The deal was scheduled to close on Dec. 10, 2012.
     Once the annuity contract is issued, Prudential will take over obligations to make future annuity payments to approximately 41,000 Verizon management retirees who began receiving pension payments from the plan before Jan. 1, 2010.
     On Nov. 28, William Lee filed a federal class action on behalf of beneficiaries of the Verizon Management Pension Plan against the telecom and five affiliates, as well as Prudential.
     The class said Verizon’s “unprecedented” action violates the Employee Retirement Income Security Act and protections under the Pension Benefit Guaranty Corp., or PBGC.
     “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 complaint said.
     The retirees claimed that the deal “undermines congressional intent to provide American pensioners with a uniform safety net under the auspices of PBGC,” as the PBGC does not cover annuities.
     They sought a temporary restraining order and a preliminary injunction to stop the transaction, U.S. District Judge Sidney Fitzwater shot their motions down Friday.
     “Plaintiffs have failed to show that the proposed annuity transaction is a circumstance that may result in ‘loss of benefits‘ because the annuity
     contract will provide for the continued payment of the participant’s pension benefit in the same form that was in effect under the plan immediately before the annuity purchase, with the same rights to future benefits,” Fitzwater wrote.
     The class also argued that the annuity contract violates Verizon’s obligations under ERISA to diversify the plan’s investments to minimize the risk of large losses, claiming the annuity contract is an investment of all the transferred assets in just one entity -Prudential.
     But Fitzpatrick said there is no precedent for treating an annuity purchase as an investment subject to ERISA’s diversification mandates.
     The retirees reportedly plan to seek relief from the 5th Circuit.
     “The Lee case was filed because the legal issues are most significant for not only the group of affected Verizon management retirees, but for all corporate American retirees whose pensions are presently being sponsored by their former employers,” class counsel Curtis Kennedy said in a statement. “As explained in the court filings submitted, the Verizon management retirees, while not immediately losing dollars and cents, will immediately be losing all of the federal law protections, and they should have been allowed a voice and choice with respect to the planned change, much like the option given to retirees of General Motors Corporation when it did a similar annuity transaction with Prudential within the past few months.
     “Verizon’s style was to do a ‘cram-down’, giving the retirees no say in the matter. So, last Friday’s ruling is not the end of the matter, as the case is most likely to be appealed to the Fifth Circuit Court of Appeals.
     “Therefore, while we could not immediately stop the Verizon/Prudential annuity transaction from going forward next week, all of the parties may, eventually, be faced with a need to unwind some of the deal.”

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