A federal judge last week granted class status to a suit filed by a pair of former Verizon Communications Inc. workers against their employer after the telecom giant transferred pension obligations to
Prudential Financial Inc.
Chief Judge Sidney A. Fitzwater of the U.S. District Court for the Northern District of Texas granted William Lee and Joanne McPartlin's suit class status March 28. The two sued Verizon last November on the behalf of 41,000 nonunion retirees whose defined-benefit pension fund was transferred to Prudential last December via a pension risk transfer valued at $7.5 billion.
The transaction allowed the communications giant to rid itself of billions of dollars in pension liabilities. In exchange, plan members were enrolled in a Prudential group annuity. The insurer began making payments Jan. 1.
The retirees are claiming that Verizon violated the Employee Retirement Income Security Act of 1974 by failing to provide required disclosures in summary plan descriptions, breaching fiduciary duties, discriminating against the 41,000 retirees and making accelerated payments to Prudential when the plan was allegedly less than 80% funded.
Above all, the plaintiffs claim their benefits were protected by the federal Pension Benefit Guaranty Corp. before the liabilities were shuttled over to Prudential. If upheld, the transaction means the retirees will have to deal with the state insurance guaranty associations in the unlikely event that Prudential was unable to make good on its payments.
“The transaction placed the affected retirees in an inferior safety net not governed by a uniform federal law, but governed by non-uniform laws relating to insurance guaranty associations of 50 separate states,” the plaintiffs noted in their complaint.
Though Prudential initially was a defendant in the suit, the insurer was severed from the case in January.
Ray McConville, a Verizon spokesman, noted that the class certification was expected by the communications company. “Both sides were expecting the class certification,” he said. “As far as the claims against us, Verizon believes these are meritless.”
Verizon yesterday followed up Judge Fitzwater's class certification by filing a petition to dismiss the allegations.
Though pension transfer deals are viewed as the next frontier for insurance companies, the lawsuit could have a cooling effect on employers' desire to go through with such transactions — even if they have expensive pension liabilities that they want to offload.
“Even if they win the lawsuit, the risks are more real,” said Marcia Wagner, a managing director at The Wagner Law Group. “This could be a game changer as to whether employers annuitize. They may want to think twice because the risk and potential cost have just increased.”
