Chief Judge Sidney A. Fitzwater of the U.S. District Court for the Northern District of Texas found it is not likely the retirees would prevail in their lawsuit claiming that Verizon violated its fiduciary duties under the Employee Retirement Security Act (ERISA) by not disclosing in the pension plan's summary plan document (SPD) that it retained the right to transfer retirees' accounts to an annuity. Fitzwater noted that the SPD is only required to explain current plan terms, not changes that may occur. While the document must notify participants of events that could result in a loss of benefits, Fitzwater said the retirees did not show the annuity transaction would result in a loss of benefits because the annuity contract will provide for payment of benefits in the same form as under the plan.
Fitzwater also pointed out that the pension plan provides that Verizon “reserves the unlimited right to amend, modify, suspend, terminate or partially terminate the plan at any time, at [its] discretion, with or without advance notice to participants.” The plan also does not restrict how Verizon provides benefits, provided that contributions, investment income, and the like are used exclusively for intended beneficiaries.
Furthermore, the court ruled that the fiduciary duty claim under ERISA fails “because it is not a fiduciary act to amend or terminate a pension plan.” Although there is a fiduciary obligation in selecting an appropriate annuity provider, the decision to amend a plan to purchase an annuity does not implicate a plan fiduciary’s duties, the opinion stated. Additionally, the opinion said, the retirees point to no authority, and the court found none, that requires treating an annuity purchase as an investment that would be subject to the fiduciary duty to diversify investments.
The retirees also contended that the annuity contract violates ERISA by discriminating against the 41,000 retirees whose pensions would be removed from the plan and transferred to the Prudential annuity contract, because the annuity contract excludes 6,000 other similarly situated management retirees and at least 50,000 other participants. Verizon explained it chose this group of retirees because it simplified the contract to include only retirees with fixed benefit payments who had been receiving them since at least January 1, 2010. Fitzwater decided that the retirees did not establish that Verizon had a specific intent to deprive the 41,000 retirees of a right under the plan or ERISA.
Two retirees, William Lee and Joanne McPartlin, filed a lawsuit in November against the Verizon and Prudential transaction (see "Lawsuit Seeks to Stop Verizon Pension Buyout"), claiming that their pension benefits would no longer be protected by ERISA and the Pension Benefits Guaranty Corporation (PBGC).
The district court's opinion is here.