As counsel to the Association of
BellTel Retirees Inc. (www.belltelretirees.org), an organization that advocates for more than 230,000
Bell Atlantic, NYNEX, GTE, MCI, DexMedia and Verizon retirees, and ProtectSeniors.Org. (www.protectseniors.org),
an advocacy group working to protect all retirees’ earned benefits, I have
concerns that insurance companies and plan sponsors routinely treat earned
pension benefits as their money even though it rightfully belongs to
For example, in December 2012
Verizon unilaterally transferred $7.4 billion in pension obligations to Prudential at a cost of $8.4 billion. Verizon handed Prudential $8.4 billion
dollars in one fell swoop. I find it even more shocking that Verizon was able
to do this without offering retirees a say in the process or any other option,
and without complying with Employee Retirement Income Security Act (ERISA)
rules governing plan terminations.
Verizon amended (as opposed to
terminated) its plan, terminating its relationship with 41,000 retirees, using
those retirees’ earned benefits to fund the entire transaction. Once this
pension de-risking transaction was completed, all of the uniform
protections intended by Congress under ERISA were lost forever, replaced by
myriad state laws that are subject to change without notice. And,
Prudential can choose to transfer the allocated group annuity contract to a
substitute benefit provider and retirees have no say in that matter either.
In the June edition of PLANSPONSOR, a well-reasoned
piece by attorney Fred Reish, chair of the Financial Services ERISA team at the
law firm of Drinker Biddle & Reath was aptly captioned: “Why AreThere Fiduciaries?” Reish concludes that we need fiduciaries because
participants are not at the table! Reish is 100% correct. Yet, pension
risk transfer actions escape ERISA’s fiduciary standards because they are
amendments to the plans and considered “settlor” functions under ERISA.
Shouldn’t someone be in the room
representing the retirees being subjected to the de-risking? And, shouldn’t that
someone be chosen by the retirees?
After all, in a pension risk
transfer transaction retirees lose the protection of ERISA’s fiduciary duty
standards; there are no more mandated annual financial disclosures; no minimum
funding thresholds; no uniform protection from creditors and bankruptcy
trustees; no ready access to the federal courts, and no Pension Benefit
Guaranty Corporation (PBGC) coverage. Plan amendments of the pension de-risking
variety need fiduciaries because retirees have no seat at the table.
Edward Stone, Counsel
to the Association of BellTel Retirees Inc. and ProtectSeniors.Org
NOTE: This feature is
to provide general information only, does not constitute legal advice, and
cannot be used or substituted for legal or tax advice. Any opinions of the author(s) do not necessarily reflect the stance of
Asset International or its affiliates.