12/6/2012 10:15:24 PM

Verizon, Prudential: Annuities 'At Least' as Safe as DB Pensions

Verizon, which is being sued by retirees to block its pension-risk transfer to Prudential, argues members will be better protected if the deal closes.

(December 7, 2012) – Verizon and Prudential and have shot back at the lawsuit filed by retirees attempting to block the $7.5 billion pension-risk transfer from the telecom giant to the insurer. 

All sides agree that the handover would strip all 41,000 members involved of the Employee Retirement Income Security Act (ERISA) and Pension Benefit Guaranty Corporation (PBGC) protections. As annuity holders, the retirees will instead fall under insurance guaranty regulations, which the complaint alleges are “an inferior safety-net.” 

Not so, says Prudential. In fact, the insurer’s response, filed with a Dallas district court on December 5, claims Verizon's pensions would be safer as annuities. 

“Not only will plaintiffs not be harmed by the Annuity Transaction, they will actually be better off after the transaction than they were before, and more secure in their expected retirement payments,” the document states. “Plaintiffs overstate the benefits of PBGC protection when asserting that its absence would constitute harm. The PBGC is not fully funded; indeed, it is currently reporting its greatest deficit ever. The PBGC depends upon pension plan premiums rather than federal appropriations, and it is not backed by the full faith and credit of the United States. Given the conservative regulatory requirements for Prudential’s capital requirements and investments, it seems unlikely that an economic scenario dire enough to bring state insurance guaranty associations into play to fulfill Prudential’s annuity commitments would not also gravely affect many pension plan portfolios and the ability of the PBGC to backstop their retirement obligations.” 

Verizon, in its response to the complaint, said the assertion of annuity safety-nets as "inferior" to the PBGC is "overstated."   

The retirees responded yesterday to Verizon and Prudential’s arguments. 

The “defendants have no basis for assuming PBGC will fail and that retirees will be better off with Prudential,” they argue in the 30-page document. “It is non-governmental organizations, including another particularly large insurance company, AIG, which failed, and governmental organizations which came to their rescue, in 2008, and the reverse will never be true.” 

The attorneys for the retirees also pointed out in their complaint that insurance guaranty regulations vary widely from state to state, and many guarantees are capped. Furthermore, Prudential would not be required to provide retirees with ERISA-mandated annual funding notices. If the risk transfer goes through, the members argue, “retirees must simply have blind faith that everything will be fine, while losing all the rights” to information on the funding status of their benefits. 

The final deadline for the risk-transfer transaction to close is December 17, according to the most recent court filings. 

The court’s ruling on whether or not to block the deal from closing could come down as early as today.

Contact the writer of this story:Leanna OrrLeanna OrrManaging Editor646-308-2763lorr@assetinternational.comFollow on Twitter at @ai_CIO