Friday, November 30, 2012 3:40:21 PM
Verizon Retirees Sue to Block Pension-Risk Transfer
The handover to Prudential strips members of ERISA and PBGC protection, which, the retirees argue, leaves them shouldering extra risk.
(November 30, 2012) – Just days before the second largest pension-risk transfer in history was set to clear, two Verizon retirees have filed a lawsuit attempting to block the $7.5 billion transaction.
The complaint, submitted in district court in Dallas, alleges that the “Verizon/Prudential transaction places the affected retirees in an inferior safety-net.”
Both sides agree that the handover will strip all 41,000 members involved of the security afforded by the Employee Retirement Income Security Act (ERISA) and Pension Benefit Guaranty Corporation (PBGC). As annuity holders, the retirees will instead fall under insurance guaranty regulations, which vary from state to state.
Verizon claims these protections are on par with ERISA and the PBGC. The telecom giant has not filed counterarguments in court, but Randal Milch, executive vice president and Verizon’s general counsel, released a statement dismissing the allegations.
“This lawsuit is without merit,” Milch said. “Verizon’s actions regarding its pensions protect the interests of our retired management employees. 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 lawsuit’s two plaintiffs—who are filing a class action on behalf of all 41,000 members—argue that no level of commitment from Prudential could compensate for the loss of federal backing.
In the event that Prudential could not meet its payment obligations, the lawsuit alleges, “insufficient and varying” state coverage would take over.
“I’m not worried about Prudential in the next few years, but the average age of these members is about 70,” Edward Stone, an insurance/finance attorney and counsel for the retirees, told aiCIO. “Many will likely live until 90. And 10 or 20 years down the road: who knows?”
“Pension-risk transfer is extremely new, and there’s no legal precedent set yet,” he continued, “You get cowboys at the forefront in these situations. But at the end of the day, this is such a serious issue, there has to be transparency and uniformity in the annuity guaranty.”
In his statement for Verizon, Milch stessed Prudential’s solidity and capacity to take on the obligation.
“Prudential has a long history of providing group annuity benefits and already provides pension plan services to 3.7 million workers and retirees nationwide,” he said. “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.”
The two parties have until December 6 to submit briefs to the Dallas court, which will decide the following day whether or not to bar the deal from closing.