Verizon's (NYSE: VZ) management retirees have gained class action status for their case against the telco's move to sell 41,000 protected pensions to The Prudential Insurance Company of America.
On Friday, federal Judge Sidney A. Fitzwater ruled that the retirees' suit had the elements to be a class action suit.
The carrier announced last October that it would transfer $7.5 billion in pension obligations for 41,000 pre-January 1, 2010 management retirees to insurer Prudential in a process that's called pension terminal funding.
Two Verizon retirees, William Lee and Joanne McPartlin, along with plan beneficiaries of the Verizon Management Pension Plan, said in a lawsuit filed last November that the conversion to an annuity would eliminate federal law protections. These protections include those provided by the Pension Benefit Guaranty Corporation (PBGC) and Employee Retirement Income Security Act (ERISA) protections. Verizon's Management Pension Plan currently has about 100,000 participants.
At that time, Fitzwater ruled that the request by two Verizon retirees to block the pension transfer did not show "substantial likelihood of success on the merits" of their case.
Although Verizon has not commented on the class action ruling, The Association of BellTel Retirees said that the suit could open the doors for retirees trying to protect their benefits at other large corporations.
"Every major corporation in this country is going to be looking at this class action suit and see how it comes out," said C. William Jones, president of the BellTel Retirees association, in an interview with FierceTelecom. "If it ends up that it comes our way, that's going to save a lot of people from possibly a bad situation, and if it goes the other way it opens the door to any corporation that wants to do it."
One of the major issues with the transfer is that should Prudential or another company that takes over the pensions default, the existing PBGC protections would be replaced by what the BellTel Retirees say are a number of insurance industry-controlled state guaranty associations.
The breakout of benefits vary from state to state: eight states limit lifetime coverage to $100,000; 28 states go up to $250,000 lifetime coverage; 10 states and the District of Columbia use a $300,000 ceiling; and only four offer $500,000.
"If you got the maximum amount of $500,000 and you retire at the age of 60, how long would $500,000 last with the lifespan of people being somewhere in the high 70s or 80s?" Jones said. "Even with the best of these state plans it may not be enough given the situation."
This suit and Verizon's move to transfer the pensions to Prudential come at a time when employees' participation in Defined Benefit plans, or those that guarantee monthly retirement payments, are declining.
Citing statistics from the Employee Benefit Research Institute, Bloomberg Business Week reported that only 15 percent of private-sector workers participate in DB plans, down from 38 percent in 1979.
Not every telco is trying to transfer their pensions. AT&T (NYSE: T) decided last October to direct a $9.5 billion stake of its wireless business to their pension trust which provides benefits for 360,000 of its retired employees.
For more:
- see the release
- here's a copy of the suit (.pdf)
- Bloomberg Business Week has this article
Related articles:
Verizon retirees lose bid to block pension transfer
Verizon takes advantage of Superstorm Sandy to accelerate copper-to-fiber migration
AT&T to inject $9.5B into its pension plan