The Supreme Court has ordered the 5th Circuit Court of Appeals to reconsider whether fiduciaries of Verizon’s defined benefit pension plan violated their duty to participants in transferring $7.5 billion in plan assets in 2012.
In August of 2015, the 5th Circuit upheld a lower court decision in favor of Verizon, in Lee v. Verizon.
That case was brought by two classes of plaintiffs: the 41,000 participants whose pension liabilities were transferred to Prudential Insurance Co., and the 50,000 participants that remained in Verizon’s defined benefit retirement plan.
In 2012, an injunction to stop the transfer of assets was denied. The two classes of plaintiffs were certified in 2013, but ultimately the U.S. District Court for the Northern District of Texas granted Verizon’s motion to dismiss the case in 2014.
The participants alleged that Verizon breached its fiduciary obligations under the Employee Retirement Income Security Act in transferring the assets. Verizon did not seek participants’ consent. Also, participants whose obligations were transferred no longer have the protection of the Pension Benefits Guaranty Corp., argued plaintiffs.
And the $1 billion in fees Verizon paid Prudential were taken from plan funds, constituting another ERISA breach, argued plaintiffs in their original claim.
In upholding the lower court’s decision, the 5th circuit cited a Department of Labor advisory opinion stating reasonable expenses incurred through an annuity transfer can be paid with plan assets, and that the plaintiffs failed to prove that the $1 billion in costs were unreasonable.
Ultimately, the plaintiffs’ claim lacked merit under Article III of the U.S. Constitution, which requires plaintiffs to show injury resulting from the alleged actions, according to both the District and Appellate court decisions.
After last year’s Appellate decision, a separate claim, Pundt v. Verizon, was spun off from the original suit, concerning only the participants whose pension obligations remained with Verizon.
In petitioning the Supreme Court to hear the case, the plaintiffs in Pundt v. Verizon cited “circuit disarray” in preceding cases concerning defined benefit participants’ standing under Article III.
Five other circuit court decisions each cited different requirements for Article III standing, argued the plaintiffs.
In vacating last year’s 5th Circuit decision, the Supreme Court ordered the Appellate court to reconsider the case in light of the recent Supreme Court decision in Spokeo, Inc. v. Robins, which addresses plaintiffs’ standing under Article III.
“This case is very important not only for this group of retirees but for potentially millions of other Americans who have defined benefit pension protections,” said Curtis Kennedy and Robert Goodman, attorneys for the plaintiffs.
“All of corporate America is closely watching the impact of this case and now it is clear that the Justices of the United States Supreme Court will also be watching. We look forward to once again making our case,” added the attorneys in a statement.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
