A pair of Verizon Communications Inc. retirees have filed suit against the company to deter it from transferring its pension liabilities to Prudential Insurance Co. of America.
Former employees William Lee and Joanne McPartlin sued Verizon and Prudential on Tuesday in the U.S. District Court in Dallas on behalf of some 41,000 non-union retirees.
Mr. Lee and Ms. McPartlin allege that by moving the retirees' pensions to Prudential, the former managers will lose their rights under the Employee Retirement Income Security Act of 1974, including required financial disclosures. Attorneys for Verizon have indicated in court documents that they need to wrap up the transaction — which would entail buying a group annuity with Prudential — on Dec. 10.
“This transaction is dangerous; it results in retirees' losing every federal protection provided to them under ERISA, and it eliminates the uniform guarantee backing their pensions provided by the [Pension Benefit Guaranty Corp.],” said Curtis Kennedy, an attorney representing the Verizon retirees. “Corporations should not be allowed to skirt the law and say they don't want this [pension] obligation anymore.”
If the transaction goes through, the insurer won't be required to tell these retirees how their annuity funding is invested and who's in charge of the underlying investments, according to the lawsuit. Plaintiffs claim that they were not consulted on the change.
Further, while the Pension Benefit Guaranty Corp. protects retirees in the event that an employer runs into difficulties covering its pension obligations, the Verizon retirees in the transaction will have to turn to a network of state guaranty funds in if Prudential is somehow unable to cover the annuities.
The transaction “places the affected retirees in an inferior safety net not governed by a uniform federal law,” the plaintiffs allege. Though most state guaranty associations cover annuity customers up to a maximum of $250,000, some provide as much as $500,000 or as little as $100,000.
Mr. Lee and Ms. McPartlin claim that Verizon has breached its fiduciary duty by failing to properly disclose the handoff in the pension's summary plan description. They also argue that Verizon failed to comply with plan document rules.
The plaintiffs also demand equitable relief against Prudential and Verizon, calling for retirees to have the choice of keeping their pension benefit in the plan, receiving a lump-sum distribution or selecting Prudential or any other insurer to provide an annuity that's equivalent to their existing plan benefits. Dawn Kelly, a spokeswoman for Prudential, declined to comment.
Mr. Lee and Ms. McPartlin also filed for a temporary restraining order to block the annuity transaction. Lawyers for Verizon responded that the communications giant and Prudential need to prepare to close the deal on Dec. 10. Verizon expects to file an opposition to the restraining order on Monday.
“This lawsuit is without merit,” Randal S. Milch, Verizon's general counsel, said in a statement. “Verizon's actions regarding its pensions protect the interests of our retirement management employees.”