Sweet ERISA: Pru wins in court, seals pension transfer with Verizon

Judge finds no violation of retirement law, rejects retirees' bid to block D-B handoff
APR 02, 2013
Prudential Insurance Co. of America today closed a deal with Verizon that will shift billions in pension liabilities to the insurer, fresh off a court victory against retirees who sought to block the transaction. The deal, originally announced in October, moves $7.5 billion of close to $30 billion in pension plan obligations to Prudential in exchange for a group annuity. The transaction affects 41,000 nonunion retirees with Verizon Communications Inc., whose future annuity payments will be coming from Prudential starting Jan. 1. It's the second such deal for the carrier, which picked up $26 billion in pension liabilities in a similar transaction with General Motors Inc. that involved 118,000 retirees and their beneficiaries. About 42,000 were allowed to select between a lump-sum payment and the annuity stream. No such choice will be given to the retirees in the Verizon-Prudential deal. Verizon and Prudential finalized the deal following a win in the U.S. District Court in Dallas on Friday. Two former employees, William Lee and Joanne McPartlin, filed suit Nov. 27 in a bid to block the handoff. The two alleged that by shifting the liabilities, Verizon's former managers will lose their rights under the Employee Retirement Income Security Act of 1974, including pension protection by the Pension Benefits Guaranty Corp. The plaintiffs also alleged that Verizon violated ERISA by failing to disclose in its summary plan description that it had the right to transfer its pension obligations. In addition, they claimed that Verizon broke the law by discriminating against this particular group of retirees. Prudential, meanwhile, asserted that its separate accounts provide security for the payments to retirees, as creditors can't touch that money in the unlikely event of an insurer's becoming insolvent. “PBGC's 'guarantee' of their benefits is hardly the panacea plaintiffs represent, and its unstable financial condition renders it a less secure guarantor of the Verizon retirees' pension payments than Prudential under the conditions of the annuity transaction,” the insurer's attorneys claimed. The carrier also claimed that the deal needs to close by Dec. 17, as “any delay of the closing of the annuity transaction would almost certainly cost Prudential the full value of the multibillion-dollar deal.” Prudential spokeswoman Dawn Kelly said the carrier had no comment on the case. In a Dec. 7 decision, Chief Judge Sidney A. Fitzwater said that the plaintiffs failed to demonstrate that the deal would result in a loss of benefits, because the contract will provide for the continued payment of the income stream in the same manner they otherwise would have received it. Mr. Fitzwater also added that ERISA requires a description of a plan's current terms, not a disclosure of changes that may occur at some point in the future. Though the plaintiffs claimed that the transaction breaches Verizon's fiduciary duty to the plan under ERISA by removing it from the protections of the PBGC, Mr. Fitzwater said that the argument failed because it's not a fiduciary act to terminate or amend a pension plan. “Although there is a fiduciary obligation in selecting an appropriate annuity provider, the decision to amend a plan to purchase an annuity does not implicate a plan fiduciary's duties,” he wrote in his opinion. “We are pleased with the court's decision,” Verizon spokesman Ray McConville wrote in an e-mail. But Robert E. Goodman, an attorney with Kilgore & Kilgore PLLC who represents the retirees, said an appeal is possible. “It may not be sufficient to block the transaction, but those issues will remain in litigation,” he said. The company had noted in a court filing: “Any harm plaintiffs might suffer can be adequately remedied through post-transaction relief." “The judge doesn't need to stop this transaction to provide a remedy,” Mr. Goodman said. “If the transaction violates ERISA, [Prudential and Verizon] may have to eat their words.”

Latest News

SEC fines, censures Ohio RIA for failure to supervise rogue remote-work rep
SEC fines, censures Ohio RIA for failure to supervise rogue remote-work rep

The Cincinatti firm reportedly missed multiple signs that the errant advisor misappropriated $728k from clients to fund his gambling, pay personal expenses, and repay other investors.

Bank of America wealth management reports boost in fresh fee-based assets
Bank of America wealth management reports boost in fresh fee-based assets

“There was also cash moving off the sidelines,” one Merrill executive noted.

Advisors weigh in on the heavyweight battle between Apple and NVDA
Advisors weigh in on the heavyweight battle between Apple and NVDA

Wealth managers watch as Apple and NVDA battle it out for the title of the world's largest company.

Broker-dealer giant Osaic taps Kristy Britt as CFO
Broker-dealer giant Osaic taps Kristy Britt as CFO

The PE-backed wealth giant is welcoming the veteran with over 20 years of experience to help lead its next phase of growth.

Wealth firms want asset managers to step up specialist support
Wealth firms want asset managers to step up specialist support

Broadridge industry survey unpacks sentiments and gaps around active ETFs, alts, indexing solutions, and AI adoption.

SPONSORED Destiny Wealth Partners: RIA Team of the Year shares keys to success

Discover the award-winning strategies behind Destiny Wealth Partners' client-centric approach.

SPONSORED Explore four opportunities to elevate advisor-client relationships

Morningstar’s Joe Agostinelli highlights strategies for advisors to deepen client engagement and drive success