Verizon headquarters
Verizon was hit with a class action lawsuit last week by three ex-employees who say it improperly shifted pension benefit responsibilities to an insurance company, in the latest pension risk transfer lawsuit challenging the efficacy of insurance companies managing pension funds.
However, insurance company Prudential, which is managing the pensions, is not named as a defendant in the Verizon lawsuit. Plaintiffs are suing Verizon and State Street Global Advisors, which served as “the independent fiduciary” in putting the deal together, according to the lawsuit.
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“State Street directly profited from the annuitization transactions through its common stock holdings in Verizon, Prudential Financial … and RGA,” the lawsuit states. “State Street’s own financial interests were improperly served … by helping Verizon obtain the cheapest available annuity provider, as opposed to the ‘safest available’ annuity provider as required by ERISA.”
Ex-Verizon engineer Maureen Dempsey and two other former employees, Heinz Schlenkermann and Chris Shelton, filed their complaint in the US District Court for the Southern District of New York. They allege the telecommunications company breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) and jeopardized their retirement savings.
In February 2024, Verizon inked the $5.9 billion pension risk transfer (PRT) deal for Prudential and RGA Reinsurance Co. to “each irrevocably guarantee and assume 50% of the benefit obligation to the retirees,” according to a press release. The companies would manage the pensions of 56,000 Verizon retirees and their beneficiaries. This is the second PRT deal between Prudential and Verizon, which completed a $7.5 billion transfer in 2012 that covered 41,000 of Verizon’s retirees.
The Verizon lawsuit claims that the transaction “resulted in all 56,000 of these retirees losing all of the uniform protections intended by Congress under ERISA, including the Federal backstop provided to all ERISA protected plans by the Pension Benefit Guaranty Corporation (‘PBGC’),” according to the suit.
As the retirement industry evolves from guaranteed lifetime pension plans to 401(k)s, PRTs have become the linchpin connecting the past, present and future of retirement benefits. These PRTs allow firms to offload the burdensome administration of allocating pension plans.
Last fall, IBM completed a $6 billion PRT deal with Prudential in a group annuity buyout.
However, as private equity firms ramp up their pursuit of PRT deals, the number of related lawsuits has surged. In 2023, there were a record 773 PRTs, which is expected to grow. Increasingly, private equity firms are seeking to purchase stakes in annuity assets to gain access to a permanent capital stream.
Related: Another pension plan risk transfer lawsuit Lumber firm sued over its $1.5B transfer to Athene Annuity
In the last year, there has been a surge of similar employee PRT lawsuits, involving Lockheed Martin, AT&T, Alcoa and GE. According to the lawsuits, these companies bypassed their fiduciary responsibility to select the safest annuity for their employees' pension plans.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
