In Dallas, Chief Judge Sidney A. Fitzwater of the U.S. District Court for the Northern District of Texas has thrown out the class action lawsuit filed by Verizon Communications (VZ) management retirees looking to stop their ex-employer from selling $8.4 billion of their pensions to Prudential Insurance Company of America (NYSE: PRU) . However, Fitzwater said that the plaintiffs can re-plead their case and they have 30 days to do so from June 24. He dismissed their Texas lawsuit per the federal Employee Retirement Income Security Act’s Section 404 (a) and noted that Verizon choosing to amend its management pension plan was not a fiduciary function.
Per the ruling, Verizon Communications and Prudential went into an agreement together last year involving the former’s pension plan agreeing to buy the latter’s premium group annuity. This would settle about $7.4 billion in liabilities. Also, Verizon would be handing over to Prudential the responsibility of giving pension benefits to approximately 41,000 retired employees. These transferred retirees are no longer part of the plan, while the about 50,000 beneficiaries and participants not included in the transaction are still part of the plan. The federal court in Texas had certified each group as a transferee class and the other as a non-transferee one, respectively.
According to the transferee class, Verizon didn’t reveal in the summary plan description that the annuity transaction might happen, which violates ERISA, breaches the company’s fiduciary duty, and discriminates against class members. Despite observing that choosing an annuity provider is a function that is a fiduciary one, Judge Fitzwater said that amending a plan is not a fiduciary function. He did say, however, that elements of the way Verizon executed the direct of the amendment might be considered fiduciary functions. (It was Fitzwater who earlier this year gave the 41,000 Verizon management retirees class status after he found that there were too many plaintiffs for them to each have their own lawsuit.)
The retirees believe that the transaction between Verizon and Prudential replaces their pensions with protected insurance annuities that are not protected by ERISA, which causes them to lose their federal law protections and does them irreparable damage. They contend that if Prudential or a successor were to suffer an asset shortfall or default, previous Pension Benefit Guaranty Corporation (PBGC) protections will get overridden by insurance industry controlled state guaranty associations, many of which aren’t satisfactorily funded. Their legal team said especially in states that don’t have the best protection levels retirees and their husbands/wives could end up with as few as two years worth of pension replacement.
This is the first time that a corporation has moved already retired persons belonging to a PBGC- guaranteed pension plan that is ERISA protected into an insurance annuity group while allowing the plan to continue for others. The employee benefits industry is watching the outcome of this case with bated breath, which could impact ERISA protected pension assets, clarify plan participants’ rights, and get more definite about plan fiduciary and sponsor duties.
SSEK is a Texas securities fraud law firm. Our law office is in Houston and we represent investors throughout the state.
Texas Judge Dismisses Verizon Retirees’ Class Action Involving $8.4 Billion Sale of Pensions to Prudential, Verizon, Ambest, July 8, 2013
ERISA, US Department of Labor
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