Prudential announced that the Verizon Management Pension Plan purchased a single premium group annuity contract from Prudential Insurance to settle approximately $7.5 billion of pension liabilities of the plan. Under the terms of the contract, Prudential Insurance has irrevocably assumed the obligation, beginning January 1, 2013, to make future annuity payments to approximately 41,000 members of the plan.
The purchase follows a federal district court rejection of an attempt by Verizon retirees to stop the transfer of certain Verizon pension obligations to Prudential. 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, which claimed 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 (see “Court Approves Verizon Pension Buyout”).
Two retirees, William Lee and Joanne McPartlin, filed a lawsuit in November against the Verizon and Prudential transaction, claiming that their pension benefits would no longer be protected by ERISA and the Pension Benefits Guaranty Corporation (PBGC).
A statement from Curtis L. Kennedy, attorney for Verizon retirees, said: “The Lee case was filed because the legal issues are most significant for not only the group of affected Verizon management retirees, but for all corporate American retirees whose pensions are presently being sponsored by their former employers. As explained in the court filings submitted, the Verizon management retirees, while not immediately losing dollars and cents, will immediately be losing all of the federal law protections, and they should have been allowed a voice and choice with respect to the planned change, much like the option given to retirees of General Motors Corporation when it did a similar annuity transaction with Prudential within the past few months. Verizon’s style was to do a ‘cram-down’, giving the retirees no say in the matter. So, last Friday’s ruling is not the end of the matter, as the case is most likely to be appealed to the Fifth Circuit Court of Appeals. Therefore, while we could not immediately stop the Verizon/Prudential annuity transaction from going forward …, all of the parties may, eventually, be faced with a need to unwind some of the deal.”