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BellTel president: sale of Verizon pension assets to Prudential violates ERISA law

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Verizon Communications’ plan to sell its pension obligations to Prudential Insurance Company of America violates federal ERISA law, an association representing Verizon’s 41,000 pensioners alleges in a complaint.

The Association of BellTel Retirees, which filed a federal lawsuit on November 29 to halt the sale of the defined benefit plan assets, states in its complaint that the transaction would permit Verizon to “evade the dictates of the Employee Retirement Income Security Act of 1974…and the protection accorded by the Pension Benefit Guaranty Corporation.”

The complaint goes on to assert that Verizon is pursuing the sale “simply to enhance its corporate credit rating.”

BellTel President C. William Jones tells National Underwriter that the association is requesting a stay of the transaction pending an adjudication of the case by the federal court where the complaint was filed: the U.S. District Court for the Northern District of Texas, Dallas Division.

“We contend that the sale is a violation of ERISA law,” says Jones. “Most of our retirees would be concerned about the loss of [ERISA] protections” if the sale were completed.

“Since ERISA was created in 1974, it’s working beautifully. And when corporations have run into trouble, the PBGC, which is backed up by the federal government, step into to fulfill pension obligations.

“If the sale were consummated, Verizon’s pensioners would be without ERISA and PBGC guarantees,” he adds.

The transaction calls for Verizon to complete by December the sale of 41,000 ERISA-protected pensions worth $7.5 billion to Newark, N.J.-based Prudential. Assuming the court allows the sale to proceed, Prudential will replace retirees’ pensions with insurance annuities that are not ERISA-protected.

BellTel’s complaint alleges, in part, that the proposed pension sale violates ERISA’s fiduciary duty requirements and prohibition against “discriminatory and intentional interference” with retirees’ rights under the pension plan.

The complaint also charges that that the sale “undermines Congressional intent to provide American pensioners with a uniform safety net under the auspices of the PBGC.”

Randal Milch, executive vice president and general counsel of Verizon, says in a prepared statement that the law is without merit.

“Verizon’s actions regarding its pensions protect the interests of our retired management employees,” he says. “The monthly pension benefits of the retirees receiving an annuity from Prudential will remain unchanged.  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.

“Prudential has a long history of providing group annuity benefits and already provides pension plan services to 3.7 million workers and retirees nationwide,” Milch adds. “An independent fiduciary conducted an extensive review of the insurance market and annuity providers and selected Prudential as the annuity provider, with the safety and protection of pension plan participants being the sole consideration.” 

The complaint aside, Jones voices policy concerns about the intended sale, noting that if more companies were to follow Verizon’s course—General Motors earlier concluded a similar pension sale with Prudential—then the PBGC would have fewer funds to back-stop pension obligations of financially troubled companies. “The PBGC depends upon premiums paid by healthy corporations like GM and Verizon to fulfill its mission,” says Jones. “I would think the PBGC would become more than a little concerned about other healthy corporations following this trend.”

Jones also expresses concern about Prudential’s ability to meet its pension obligations under the sale. He describes as less than “robust” Prudential’s financial position, noting that the company’s liabilities are only 4% less in value than the assets recorded in its balance sheet.

Verizon retirees could be put further at risk, he adds, if Prudential were to resell the pension obligations to another, financially weaker life insurer.

Verizon might secure BellTel’s acceptance of the intended sale if retirees were offered a lump sum distribution in lieu of an insurer-funded annuity.

“This is not necessarily the best option, as some people can’t manage their money very well,” says Jones. “But it’s a fair alternative. A lump sum payment would be a more palatable arrangement.”