Verizon Pension Risk Transfer Case: Implications for Insurance and Retirement
A recent legal decision has dismissed a complaint against Verizon concerning its termination of two defined benefit pension plans through a substantial pension risk transfer. The complaint accused Verizon and its advisers of violating the Employee Retirement Income Security Act (ERISA). This dismissal by a federal judge in New York underscores a trend of decreasing litigation in the context of pension risk transfers.
Legal Standing and Pension Risk Transfer
In the case Dempsey et al. v. Verizon Communications Inc. et al., U.S. District Judge Alvin Hellerstein ruled that the plaintiffs, retirees from Verizon, lacked the necessary legal standing under Article III to challenge Verizon’s decision. This decision involved purchasing group annuities from Prudential Insurance Co. of America and RGA Reinsurance Co. as part of a $5.7 billion pension risk transfer. The ruling highlighted the absence of a "substantial risk of imminent harm" to the retirees, a necessity for legal standing in such cases.
Judge’s Rationale and Industry Implications
The judge concluded that the plaintiffs did not sufficiently allege breaches of fiduciary duty or prohibited transactions under ERISA. As a result, the case was closed with prejudice, preventing refile in the same court. Verizon's transaction, initiating in March 2024, transferred approximately $5.7 billion in plan assets to insurance carriers while writing off about $5.9 billion in pension liabilities. The plaintiffs feared that this transfer exposed them to risk by removing ERISA protections, but the court found no actionable harm, as the retirees’ benefits remained unchanged.
Impact of Regulatory Decisions on the Insurance Industry
The Department of Labor (DOL) recently supported a similar stance in a case involving Lockheed Martin, arguing in an amicus brief that ERISA does not prohibit structured annuity transactions. It emphasized that speculative risk does not meet fiduciary breach thresholds. The DOL cited negative impacts of pension risk transfer litigation on defined benefit pension plans, indicating potential regulatory support for such transactions.
Trends in Pension Risk Transfer Litigation
Reports suggest a decline in pension risk transfer lawsuits, with 12 cases filed in 2024 and only one in 2025, according to Davis & Harman. The DOL warns that continuous litigation could jeopardize the benefits of these transactions. As such lawsuits decrease, those in the insurance and pension sectors should keep abreast of the evolving legal landscape to effectively manage risks and comply with regulatory requirements.