Verizon Communications Inc. (VZ) pension- plan beneficiaries lost a bid to block the company’s transfer of $7.5 billion in plan obligations to Prudential Insurance Co. of America.
U.S. District Judge Sidney A. Fitzwater in Dallas today denied a request by two retirees who worked for a Verizon predecessor to issue an order stopping the deal, saying they failed to show a “substantial likelihood of success on the merits” of their case.
The transaction, under which the retired managers’ plan would be converted to an annuity, would strip them and about 41,000 other beneficiaries of the protections of federal law and cause irreparable harm, they said in lawsuit filed Nov. 27.
“Plaintiffs have failed to establish a substantial likelihood that Verizon has a specific intent to interfere with their rights,” Fitzwater wrote in his opinion today. “They do not offer a rebuttal to Verizon’s proffered legitimate, nondiscriminatory reasons for defining the group of retirees for the annuity contract.”
Verizon, the second-largest U.S. phone company, said on Oct. 17 that it planned to shift about one-fourth of its pension obligations to Prudential to remove risk from its balance sheet. The New York-based company has said the beneficiaries’ lawsuit is without merit and it may be harmed if the transaction isn’t completed by Dec. 10.
Curtis Kennedy, an attorney for the retirees, said today that his clients should have been given “a voice and a choice,” as General Motors Co. beneficiaries were when their plan was transferred to Prudential.
“Verizon’s style was to do a ‘cram-down,’ giving retirees no say in the matter,” Kennedy said in an e-mailed statement. Fitzwater’s ruling will probably be appealed, the lawyer said.
“While we cannot immediately stop the Verizon/Prudential annuity transaction from going forward next week, all of the parties may, eventually, be faced with a need to unwind some of the deal,” Kennedy said.
In his 15-page ruling, the judge rejected the plaintiffs’ claims that by transferring the whole of their pension to just a single entity, Prudential, Verizon was breaching its fiduciary duty to diversify plan investments to minimize risk.
“This argument relies on characterizing the annuity contract as an investment instead of a distribution of benefits,” Fitzwater said. “But plaintiffs offer no support for their position that the fiduciary duty to diversify investments applies in this context.”
Ray McConville, a spokesman for Verizon, said by phone today that the company is pleased with the court’s decision.
“Verizon’s actions regarding its pensions protect the interests of our retired management employees,” the company said in a Nov. 29 statement. “The monthly pension benefits of the retirees receiving an annuity from Prudential will remain unchanged.”
The unit of Prudential Financial Inc. (PRU), the second-largest U.S. life insurance company, is also a defendant in the suit. In a Dec. 5 filing, the Newark, New Jersey-based company told Fitzwater the plaintiffs’ pensions will remain safe and urged him to reject their request to block the transfer.
“Prudential has paid retiree benefits under group annuity contracts and other arrangements since 1928 without interruption,” according to the filing.
Dawn Kelly, a Prudential spokeswoman, declined to comment today on the judge’s ruling.
The case is Lee v. Verizon Communications Inc., 12-cv-4834, U.S. District Court, Northern District of Texas (Dallas).
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