The U.S. Supreme Court recently vacated a lower federal court’s decision related to Verizon’s spin-off of 41,000 retiree pensions, converting those to a group annuity.
The High Court sent the case, Pundt v. Verizon Communications, et al, back to an appeals court to re-evaluate the merits of the lower court’s earlier decision, potentially impacting the pension de-risking strategies of American corporations.
The class-action lawsuit was advanced by the Association of BellTel Retirees Inc. (BellTel), which represents 134,000 union and management Verizon retirees. In 2013, Verizon transferred $7.5 billion in defined benefit pension assets to Prudential Insurance without providing the retirees any input or notice.
The lawsuit also clarifies that the telecom giant used another $1 billion from the pension fund to pay “administrative” costs of the transfer.
On May 23, the U.S. Supreme Court ordered the Fifth Circuit Court of Appeals to reconsider its earlier action, particularly in light of another recent case that was also remanded to the lower courts, Robins v. Spokeo.
In both cases, the courts must determine whether the plaintiffs suffered “concrete harm” as a result of the company’s actions. Also at issue in the Pundt case is the statute of limitation on proof of harm. Currently, a retiree whose pension has been de-risked would have no recourse should their pension assets be lost or diminished beyond two years of the court limit.
In April 2016, the International Monetary Fund once again expressed major concern about how pension de-risking would affect the U.S. and global economy, recommending improvements, including “increased vigilance over the insurance sector,” “further global regulatory reforms” and an “international capital standard for insurance companies.”
The U.S. Treasury also recently issued its concern about the financial stability of insurers after a federal judge ruled that MetLife, with more than $877 billion in total assets, is not too big to fail.
The decision came after the federal Financial Stability Oversight Council ruled in December 2014 that MetLife could pose a threat to the nation’s financial stability should it be destabilized and should therefore be subjected to stricter oversight by the Federal Reserve.
“The order by the U.S. Supreme Court to vacate the lower court decision and send it back to be completely re-evaluated is a huge vindication of our argument,” said BellTel Chairman Jack Cohen.
“The court has sent a powerful message that Verizon retirees – and, by extension, millions of others whose pensions have been de-risked – cannot simply be dismissed. When our assets were sold off without our consent we sought relief through the federal judicial system and now, the highest court in the land, said that our concerns have standing and we must continue to be heard. On behalf of our 134,000 members, we will not stop the fight for our retirement security.”
“Retirees were made a promise by their former employers and by Congress through ERISA that our pensions would be protected. In many cases, we accepted lower salaries throughout our working lives in exchange for that guarantee,” said BellTel President Jack Brennan. “Now those protections are at risk and we remain vigilant in our pursuit of every remedy, including this potentially momentous case, to ensure America’s retirees are not left abandoned and destitute by the current pension stripping craze.”
“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, lead attorney for the retirees. “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.”
A Verizon spokesman told Business Insurance, “We don't believe the Supreme Court's remand of the case back to the 5th Circuit on the narrow Constitutional standing issue will change the outcome of our case.”
The Washington D.C. based Pension Rights Center has filed an amicus brief in the case, coming down on the side of the retirees:
“Resolution of the issues in this case is enormously important, as it potentially affects the retirement income security of millions of plan participants. Too much protection is given to fiduciaries, and insufficient protection to participants and beneficiaries, when a participant in a defined benefit plan is required to show loss to individual benefits in order to having standing.”