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 retirees.
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
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