Verizon, Prudential Complete Partial Pension Buyout

Verizon and The Prudential Insurance Company of America have completed a challenged pension risk transfer transaction.

Prudential announced that the Verizon Management Pension Plan purchased a single premium group annuity contract from Prudential Insurance to settle approximately $7.5 billion of pension liabilities of the plan. Under the terms of the contract, Prudential Insurance has irrevocably assumed the obligation, beginning January 1, 2013, to make future annuity payments to approximately 41,000 members of the plan.  

The purchase follows a federal district court rejection of an attempt by Verizon retirees to stop the transfer of certain Verizon pension obligations to Prudential. Chief Judge Sidney A. Fitzwater of the U.S. District Court for the Northern District of Texas found it is not likely the retirees would prevail in their lawsuit, which claimed that Verizon violated its fiduciary duties under the Employee Retirement Security Act (ERISA) by not disclosing in the pension plan’s summary plan document (SPD) that it retained the right to transfer retirees’ accounts to an annuity (see “Court Approves Verizon Pension Buyout”).  

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Two retirees, William Lee and Joanne McPartlin, filed a lawsuit in November against the Verizon and Prudential transaction, claiming that their pension benefits would no longer be protected by ERISA and the Pension Benefits Guaranty Corporation (PBGC).

A statement from Curtis L. Kennedy, attorney for Verizon retirees, said: “The Lee case was filed because the legal issues are most significant for not only the group of affected Verizon management retirees, but for all corporate American retirees whose pensions are presently being sponsored by their former employers. As explained in the court filings submitted, the Verizon management retirees, while not immediately losing dollars and cents, will immediately be losing all of the federal law protections, and they should have been allowed a voice and choice with respect to the planned change, much like the option given to retirees of General Motors Corporation when it did a similar annuity transaction with Prudential within the past few months. Verizon's style was to do a 'cram-down', giving the retirees no say in the matter. So, last Friday's ruling is not the end of the matter, as the case is most likely to be appealed to the Fifth Circuit Court of Appeals. Therefore, while we could not immediately stop the Verizon/Prudential annuity transaction from going forward ..., all of the parties may, eventually, be faced with a need to unwind some of the deal.”

Legg Mason Extends MPI Tools to DCIO Platform

Retirement plan reporting and monitoring services from Markov Processes International (MPI) are now available to advisers on Legg Mason’s DCIO distribution platform.

As defined contribution has become an increasingly large part of retirement business, Legg Mason has reached out to support advisers with investment products and tools. (see “Stylus Web Brings Plan-Level Reporting for Financial Advisers.”)

Stylus Web, MPI’s scalable Web-based fund manager research and reporting tool, allows Legg Mason to give its advisers access to plan analysis tools and reporting capabilities to better serve plan sponsor clients and display their fiduciary role, potentially winning new business.

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The use of MPI’s Stylus Web can help both sides fill fiduciary roles by having a flexible investment scorecard (also known as an IPS or Investment Policy Statement monitor) to monitor and display how well investments are meeting objectives, Jeff Schwartz, managing director of MPI, told PLANADVISER.

As Schwartz pointed out, a plan sponsor’s fiduciary obligations include selecting managers that will allow their plan participants to create well-diversified portfolios based on Modern Portfolio Theory (MPT). One key part of choosing a manager is assessing style consistency and exposure, he said, “and these reports certainly address that need in a highly precise way.”

 

 

The reporting flexibility and precise investment analytics of Stylus Web help advisers construct better fund lineups, communicate investment dynamics and monitor funds for changes in style, risk and other red flags.

“Glide path analysis of target-date and target-risk funds is a current product development focus at MPI, and we hope to have a product announcement soon,” Schwartz said.

“The report (MPI Plan Analyzer) can show analytics on target-date funds, using the same metrics as standard funds, including all the risk analytics,” said Gary Kleinschmidt, head of retirement at Legg Mason.

The Plan Analyzer also includes data for exchange-traded funds, insurance group separate accounts, money market funds, variable annuities and stable value funds, among others.

MPI is a provider of tools that analyze investment performance and risk.

Legg Mason is a global asset management firm.

 

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