Verizon Communications management retirees have filed a lawsuit against the company and independent fiduciary State Street Global Advisors, alleging they violated their fiduciary duties under ERISA in transferring pension plan liabilities to two insurance companies.
The three retirees' lawsuit, filed Dec. 30 in U.S. District Court in New York, alleges Verizon and SSGA violated their fiduciary duties under the Employee Retirement Income Security Act of 1974 by obtaining the “cheapest available annuity provider” as opposed to the “safest available” annuity provider as required by Interpretive Bulletin 95-1.
IB 95-1 is the U.S. Department of Labor’s Employee Benefits Security Administration guidance related to the fiduciary standards of pension risk transfer transactions that requires plan sponsors purchase the “safest annuity available.”
The lawsuit is related to New York-based Verizon’s purchase of group annuity contracts from Prudential Insurance Co. of America and RGA Reinsurance to transfer about $5.9 billion in pension plan liabilities.
The transactions, which closed March 6, transferred the responsibility of paying benefits to about 56,000 retirees to the two insurance companies effective July 1.
Prudential and RGA each assume about 50% of the transferred liabilities, except for "certain jurisdictions" where Prudential will assume 100% of the benefit obligations related to retirees residing in those jurisdictions, according to an 8-K filing with the SEC at the time.
Prudential and RGA are not defendants in the lawsuit.
The lawsuit also alleges Verizon and SSGA purchased “substandard annuities” which are “heavily dependent upon transactions with affiliates that are not transparent and expose plan participants to unreasonable amounts of risk and uncertainty.”
A Verizon spokesperson said in a statement, "The lawsuit is completely without merit. Verizon will defend the matter vigorously."
Verizon’s pension buyout transaction in 2024 was the second for the company, which in 2012 purchased a group annuity contract from Prudential to transfer about $7.5 billion in U.S. pension plan liabilities. SSGA was the independent fiduciary for that first buyout as well.
Following the first buyout, management retirees filed a similar federal lawsuit in November 2012 in U.S. District Court in Dallas, which claimed the buyout transaction “wipes out the federally insured pension safety net provided by the Pension Benefit Guaranty Corp.,” according to a news release from the BellTel retirees association at the time.
After the district court dismissed the 2012 lawsuit and an appeals court declined to review it, the remaining plan participants petitioned the Supreme Court to reverse the decision, citing “circuit disarray” over the question of standing, with five circuits disagreeing over when plan participants can sue and numerous amicus briefs filed by the U.S.
The U.S. Supreme Court ultimately ordered the 5th U.S. Circuit Court of Appeals in New Orleans to reconsider the lawsuit, and it was dismissed in October 2016.
