A federal appellate court affirmed the legality of Verizon Communications Inc.’s 2012 decision to offload more than $7 billion in pension obligations, in a ruling that lent further support for popular pension derisking measures.
In Lee. v. Verizon, 2015 WL 4880972 (5th Cir., Aug. 17, 2015), two classes of plaintiffs — retirees whose benefits management was moved to Prudential Insurance Co. through an annuity sale, and other participants whose pension obligations remain with Verizon — appealed a district court ruling that found Verizon was permitted to offer the huge buyout and risk transfer. The pension shift affected 41,000 participants and beneficiaries.
In November 2012, when Verizon paid $8.4 billion for the annuity purchase, the plaintiffs went to court to try to halt the action, arguing that it violated ERISA’s fiduciary requirements. However, the district court denied the injunction and dismissed the claims, agreeing with Verizon that the allegations lacked merit.
On appeal, the 5th U.S. Circuit Court of Appeals upheld the lower court’s decision. ERISA and related regulations “authorize annuity purchases, and do not prohibit such purchases during an ongoing plan,” according to the unanimous three-judge panel.
The court also rejected the plaintiffs’ claim that Verizon breached ERISA by not seeking consent for the decision to sell the pension obligations to an annuity provider. The act contains no requirement for such consent, the court found.
The plaintiffs had raised the possibility that Prudential could sell or transfer its ownership of the Verizon annuities to another company, or could fail, as has happened with other major financial services firms in recent years. Such a default would leave plan participants protected only by various state guaranty associations, rather than the U.S. Pension Benefit Guaranty Corp., they alleged.
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