Back in November, we discussed a lawsuit that had been filed here in Texas by Verizon retirees in an attempt to halt the sale of their pension plan to Prudential Insurance Company of America. The retirees--who actually worked for a Verizon predecessor--argued that the sale violated the Employee Retirement Security Act.
Earlier this month, a U.S. district court approved Verizon's plan to sell the pension obligations to Prudential, finding that Verizon retirees did not prove their accusations to the court.
The retirees filed their complaint based on a number of issues, but the primary problem was that when the pension is sold to Prudential it would convert into insurance annuities. This means the pension would no longer be protected by ERISA nor insured by the Pension Benefit Guaranty Corporation.
Specifically, the lawsuit stated the following three ERISA violations:
- Verizon failed to disclose in its plan description that it had the right to move its pension obligations over to an insurance company.
- The sale is a breach of Verizon's fiduciary duties.
- Verizon is discriminating against the affected retirees by interfering with their rights under the existing plan.
The court, however, thought the retirees failed to prove an injunction of the sale was justified. Although the transfer went through on Dec. 10, the group of retirees has said it will appeal the court's decision.
The future of this case remains to be seen. Many companies have transferred pension obligations to insurance companies in recent years, but most of those were much smaller than the $7.5 billion Verizon transferred.
When pensions are moved to insurance annuities, retirees continue to receive the same monthly checks that they were receiving before, only they are from another party--the insurance company. However, the fear pension-holders have is that the insurance companies may fail, putting their pensions in jeopardy. If Verizon held the pension and went bankrupt, for example, the retirees would be OK because their pension benefits would be insured by the Pension Benefit Guaranty Corporation.
Pensions owned by insurers have insurance as well, but generally with less coverage.
Source: LifeHealthPro, "U.S. district court approves Verizon's pension sale to Prudential," Warren S. Hersch, Dec. 10, 2012
Source: Pittsburgh Post-Gazette, "Heard Off the Street: Pension ruling concerns retirees," Len Boselovic, Dec. 16, 2012
- Visit our San Antonio employment law firm's website for more information about Texas Employment Benefit Litigation/ERISA.