Thursday, November 29, 2012

Calling Verizon - Do You Know Where My Benefits Are?

Verizon Communications Inc. ("Verizon") was sued earlier this week in the United States District Court for the Nothern District of Texas for an alleged misuse of plan assets. See Lee v. Verizon Communications Inc., Case No. 12-cv-04834 (N.D. Tex.). The putative class action alleges that Verizon's plan to transfer $7.5 million in assets from its defined benefits pension plan to purchase annuities from Prudential Insurance Company of America ("Prudential") violates ERISA.

By way of background, Verizon announced on Oct. 17, 2012 that it reached an agreement to use pension assets to purchase a group annuity contract from Prudential, which would then assume the obligation to make future annuity payments affecting about 41,000 Verizon retirees. Verizon asserted that it expected the transfer to further its “objective of de-risking the pension plan while improving the company's longer term financial profile.” The lawsuit alleges that the plan asset transfer violates Verizon's fiduciary duties under ERISA and interferes with the retirees' protected rights under ERISA. The retirees have asked the court to enjoin Verizon from proceeding with the plan asset transfer to Prudential. The lawsuit alleges that the transfer of plan asset would improperly eliminate all ERISA protections to which the retirees are entitled because “Prudential will not be subject to ERISA's fiduciary duties standards, minimum funding standards and disclosure requirements.” The participants also aver that the transfer “will effectively eliminate all of the transferred retirees' ERISA protections for their pensions,” including the financial security provided by the Pension Benefit Guaranty Corporation.

The lawsuit sets forth several claims. First, it alleges that Verizon violated ERISA by failing to issue a summary plan description ("SPD") that “disclose[d] all circumstances that may result in Plaintiffs' and putative class members' ineligibility for or loss of benefits provided by the Plan,” asserting that Verizon's SPDs failed to disclose “that either a single retiree or large group of retirees with vested rights could be involuntarily removed from enrollment in the Plan and transferred to either Prudential or any other insurance company and, thereby, made ineligible for continued receipt of pension benefits under the Plan.” The lawsuit also asserts that Verizon breached fiduciary duties by failing to comply with relevant plan documents, stating that Verizon's plan to transfer the participants out of the plan is an attempt to “evade a standard termination of the Plan,” which is the “only process allowed by the Plan's controlling terms so as to immediately end Plan participation by the group of 41,000 retirees.” According to the complaint, the plan lacks language authorizing Verizon to “involuntarily transfer retirees' pensions out of the Plan to be replaced by an insurance annuity,” which violates the plan's restriction on reducing participants' accrued benefits under the plan. Additionally, the transfer breaches fiduciary duties to diversify investments and to act solely in the interest of plan participants, the participants allege. The lawsuit also alleges that Verizon has violated ERISA Section 510 by interfering with the participants' rights by seeking to expel them from the plan before they have received all vested benefits they are entitled to under the plan. The suit further asserts claims under ERISA Sections 502(a)(2) and (a)(3) seeking to require Verizon to “maintain the status quo and not carry out the contemplated removal of 41,000 retirees from the Plan.”