Large corporations thinking about transferring hefty defined benefit plan payouts to insurance companies for them to manage now have judicial support for that approach. A federal judge in Texas has denied a bid by retired Verizon Communications executives to block the company from making a proposed shift off its books of $7.5 billion in pension obligations.
Judge Sidney Fitzwater on Dec. 7 denied a preliminary injunction in William Lee and Joanne McPartlin and Plan Beneficiaries of the Verizon Management Pension Plan vs. Verizon Communications Inc., which was filed Nov. 28 in the U.S. District Court for the Northern District of Texas, Dallas Division (No. 3:12-cv-04834-D). In the lawsuit, the former Verizon managers sought to halt the telecommunications company from shifting the pensions of 41,000 plan participants and beneficiaries to Prudential Insurance Co. for it to administer as annuities. The judge said in his ruling that the retirees failed to show substantial likelihood that the suit would succeed on its merits.
In part, Judge Fitzwater found that “plaintiffs failed to show that the proposed annuity transaction … may result in ‘loss of benefits’ because the annuity contract will provide for the continued payment of the participant’s pension benefit in the same form that was in effect under the Plan immediately before the annuity purchase… Plaintiffs do not challenge the annuity contract on the basis that it will affect the amount or right to benefits.”
The proposed transfer of $7.5 billion in pension assets would be one of the largest such transactions in U.S. corporate history; earlier in 2012, General Motors shifted about $26 billion to Prudential in a similar group annuity purchase.
What’s Next
Verizon officials said the Prudential annuity transaction is expected to close Dec. 10. The insurance company will take over distributions for these management participants, who retired before 2010.
The plaintiffs’ attorney said they would appeal, according to news reports.
Finding out More
To learn more about annuities, see ¶266 in The 401(k) Handbook.
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