Verizon, State Street sued over pension-risk transfer to Prudential, RGA

Verizon, State Street sued over pension-risk transfer to Prudential, RGA
A $5.9 billion pension liabilities transfer Verizon made last year to Prudential and RGA is at the center of the latest lawsuit over pension-risk transfers.
JAN 02, 2025

Verizon this week became the latest employer to be sued over a pension-risk transfer, with a new twist in the snowballing line of litigation: the insurer called out for allegedly being risky is Prudential.

In a complaint filed on Monday in US District Court in the Southern District of New York, plaintiffs in the proposed class action named the plan sponsor, Verizon, as well as the independent fiduciary in the annuity-selection-process, State Street Global Advisors Trust Company, as defendants.

The case appears to be the first involving a pension-risk transfer (PRT) to Prudential Insurance Company of America. Most of the cases with claims about PRTs have centered on plan sponsors’ selection of Athene Annuity & Life Co., though that insurer has not been named as a defendant.

The plaintiffs in the new case allege that Verizon and State Street breached their fiduciary duties and engaged in prohibited transactions in connection with a PRT of $5.9 billion in liabilities for 56,000 retirees and beneficiaries in March 2024 to Prudential and Reinsurance Group of America. The law firm behind the suit is Kantor & Kantor, another difference from prior suits over PRTs, as many of those previously filed were brought by Schlichter Bogard.

“The Verizon retirees have now been transformed into certificate holders under risky group annuities that are no longer regulated by ERISA or insured by the Pension Benefit Guaranty Corporation,” the complaint read. “As a consequence, impacted retirees are quite rightly fearful and concerned about their futures, the fate of their retirements, and the financial well-being of their beneficiaries.”

Such group annuity contracts are covered by individual state regulations, rather than being insured by the PBGC and covered by the Employee Retirement Income Security Act.

State Street acted in its own interest, as it has common stock holdings in Verizon, Prudential, and RGA, the plaintiffs alleged.

“Verizon and State Street chose to purchase substandard annuities for Verizon retirees from PICA and RGA, which are both heavily dependent upon transactions with affiliates that are not transparent and expose plan participants to unreasonable amounts of risk and uncertainty,” the complaint read. “These affiliates are domiciled in ‘regulation light’ jurisdictions where wholly owned captive reinsurers and affiliates are permitted to count debt instruments as assets and are not required to file publicly available financial statements.”

Representatives for Verizon and State Street did not immediately respond to requests for comment. Prudential, which is not named as a defendant in the case, also did not respond to a comment request.

The plaintiffs are seeking to have the annuities guaranteed through the purchase of reinsurance and to have the contracts placed inside of Verizon’s plan as an asset, among other requests for relief.

Despite the surge of lawsuits that started last year, many large employers have pursued PRTs for pension liabilities on their books. That has happened amid higher interest rates and as market returns have helped plans increase their assets to match liabilities, making the transfers to insurers more affordable.

Last year marked the first time in many years that pension plans on average had funding levels at 100 percent, up from 98 percent in 2023 and 2022, according to data published today by WTW. Those figures were up from 88 percent in 2020 and just 77 percent in 2012, the reported noted.

As of the third quarter of 2024, single-premium PRTs represented $39.9 billion in premiums year to date, a 21 percent increase from the first nine months of 2023, data from Limra show.

Whether further litigation will cause plan sponsors to think twice about PRTs in the coming year is a question, one observer said.

“I will be watching with great curiosity to see how the market reacts to these allegations related to now multiple carriers’ transparency, being faced both by the plan sponsor and the fiduciary advisor in this case,” said Michelle Gordon, owner of consultancy MRG Advisors, in an email.

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