Earlier today, a federal district court granted Verizon’s motion to dismiss a class action lawsuit challenging its recent transfer of $7.5 billion of pension liabilities to Prudential (Lee v. Verizon, N.D. Tex.). The court concluded that plaintiffs had failed to state a claim that the transaction violated ERISA’s disclosure and fiduciary obligations. The court granted plaintiffs 30 days to file an amended complaint.
The court’s decision builds upon its earlier decision rejecting plaintiffs’ request to enjoin the transaction before it occurred last December. The key conclusions of the court’s recent decision include:
1. No Advance SPD Disclosure Required. The plan’s summary plan description (SPD) did not need to describe the possibility that pension liabilities could be transferred to an insurance company. An SPD must describe the circumstances under which benefits might be lost. The court concluded that a transfer from the plan to an insurance company is not a benefit loss for purposes of ERISA’s SPD requirements.
2. Decision to Annuitize Is a Settlor Act. The court reiterated its earlier holding that Verizon’s decision to transfer pension liabilities to Prudential was a settlor act and not a fiduciary act. The decision to annuitize therefore did not violate ERISA’s fiduciary duties.
3. Insurance Company Premium Is Not Per Se Unreasonable. Plaintiffs alleged that Verizon violated ERISA’s exclusive benefit rule by paying from the pension trust almost $1 billion more than the value of the liabilities that Prudential assumed. The court concluded, however, that “[w]ithout more than essentially an allegation of the amount that Verizon paid and the conclusory assertion that it was unreasonable,” plaintiffs had failed to state a “plausible” claim.
4. No Right under ERISA to Remain in a Pension Plan. Plaintiffs alleged that the transfer to Prudential interfered with their right to continue to participate in the Verizon pension plan in violation of section 510 of ERISA. The court noted, however, that plaintiffs had no right under ERISA to continue to participate in the pension plan. Accordingly, the transfer to Prudential did not interfere with any right to continued participation in the plan under ERISA.
5. Participants Remaining in Pension Plan Had No Standing to Challenge Transfer. Participants in the Verizon pension plan who were not transferred to Prudential claimed that the transfer impermissibly depleted plan assets. The court concluded that the depletion of plan assets alone does not establish injury in fact (a requirement of standing) when, as here, the amount of the participants’ benefits does not vary based on the amount of plan assets. To establish injury in fact, the court stated that participants must show “an effect on . . . benefits payments.”
Covington partners T.L. Cubbage, Jeff Huvelle, and Chris Pistilli represent Verizon in the litigation.