NEW YORK (AP)—Verizon retirees have sued the phone company because it’s planning to transfer the responsibility of paying their pensions to an insurance company, where they will have weaker legal protection.
Verizon Communications Inc. said last month that it would transfer $7.5 billion of its pension obligations, covering 41,000 management retirees, to Prudential Insurance. The deal effectively turns the company’s defined-benefit pensions into annuities.
Members of the Association of BellTel Retirees sued in federal court in Dallas on Tuesday. They’re seeking a court order to halt the deal, which is set to close in December.
They note that annuities aren’t covered by the federal Pension Benefit Guaranty Corp. A shortfall in the assets backing the annuities would be replaced by a “patchwork network of state guaranty associations, many of which are underfunded,” the group said.
“Retirees and their spouses, especially in states with the lowest protection levels, will be seriously harmed and left with as little as two years pension replacement in case of insurer default,” said William Jones, president of the retirees’ association.
Randal S. Milch, New York-based Verizon’s general counsel, said the suit lacks merit, adding that Prudential has a long history of providing group annuity benefits.
“Prudential is providing an irrevocable commitment to make all future annuity payments, and this promise will be supported by the extra protection of assets being placed in a separate account at Prudential dedicated to Verizon retirees,” Milch said.
When it was announced, Verizon said the deal lowers the risk that its pension obligations will end up costing more than projected.
Consulting firm Aon Hewitt, which helped Verizon on the deal, said it was the second largest insured annuity settlement ever in the U.S. This summer, General Motors Corp. said it would settle $26 billion in pension obligations through lump sum payments and purchases of Prudential annuities.
Verizon has a total of $30 billion in outstanding pension obligations including the $7.5 billion slated to be transferred to Prudential.