Beneficiaries of a Verizon pension plan that transferred some of its assets to an annuity provider have formally petitioned the Supreme Court of the U.S. (SCOTUS) to examine the transaction—particularly as it relates to whether a participant in an Employee Retirement Income Security Act (ERISA) defined benefit (DB) plan has Article III standing to file suit over fiduciary breaches when there has been no direct or immediate loss to his individual benefit.
It’s been half a year since an appellate court ruled that Verizon Communications’ 2012 decisions to amend its employee pension plan and transfer certain assets to an annuity contract were settlor, not fiduciary, functions. In so finding, both the district and appellate courts agreed with Verizon that it had not breached anti-cutback provisions of ERISA by moving the assets out of the act’s protective purview.
The retirees argue their case should be considered by the Supreme Court because “it will have huge implications not only for the hundreds of thousands more retirees from Verizon but also for corporations all over the country, who are watching this case very closely. It could have a severe impact on the future of defined benefit pensions.”
Verizon denies this outright and suggests its decision to move assets from the pension to a group annuity has in no way caused actual harm to participants, nor will it. Interestingly, the Verizon retirees don’t necessarily disagree with the assessment that they have not yet suffered direct harm from the annuitization—the operative word being “yet.”
In their petition to SCOTUS, the retirees stress that their worries are more long-term in nature. They believe, all things considered, that a pension benefit is safer and more reliable than an annuity payment from an insurer. Therefore, moving the assets out from under ERISA represents a material cutback on promised benefits.
NEXT: Looking at the specifics
The specific details of the case are impressive—with the annuity contract in question valued at $8.5 billion. The transaction extracted $7.5 billion in assets from the Verizon management pension plan, plus another $1 billion in pension dollars to the insurer for all costs expended in order to consider and enact the deal.
As it stands today, the case has been dismissed by the 5th U.S. Circuit Court of Appeals. It involves two classes of pension plan participants—those whose benefit liabilities were transferred to Prudential and those whose liabilities remain in the plan. The appellate court agreed with the district court's dismissal of the claims of the non-transferee class essentially because the class did not prove individual harm and, therefore, lacked standing to sue under ERISA.
Plaintiffs had argued that the Verizon defendants violated ERISA in part because summary plan descriptions (SPDs) prior to the plan amendment providing for the transfer to Prudential did not disclose the possibility that benefit obligations could be transferred to an insurance-company annuity absent a plan termination or spinoff/merger. The 5th Circuit found that argument “lacked merit in light of its precedent, which holds that ERISA does not require SPDs to describe future terms, and statutory language requires only retrospective notice of plan amendments.”
In its opinion, the court noted that ERISA requires only that administrators provide a summary of material modification or change “not later than 210 days after the end of the plan year in which the change is adopted.” The court found that the plan fiduciaries provided notice shortly after the amendment’s adoption, well within the time limits imposed for notice of plan amendment. It also noted that the pre-amendment SPDs advised participants of Verizon’s reservation of the right to amend the plan, and the possibility that an amendment might affect their rights under the plan.
NEXT: Disagreement abounds
In their petition to SCOTUS, the retirees suggest that the question of “whether a fiduciary breach under ERISA is an injury in fact” has been addressed by five circuits in at least eight cases, each finding different requirements for Article III standing.
The petition even suggests these five circuit courts have reached widely different conclusions about ERISA lawsuits brought under Article III: “Circuit courts have acted atextually and ahistorically by adding various requirements for participants to bring suit to redress mismanagement of their pension plans. Such requirements, which differ from circuit to circuit, are neither in ERISA nor in trust law. These decisions undermine the text and intent of ERISA and the repeated directions of this Court to look to trust law in ERISA cases.”
Agreeing with many of the retirees’ arguments, the Pension Rights Center has filed an amicus brief in support of the pensioners. Like the retirees, the research and advocacy organization notes “five circuits disagree about when ERISA defined benefit plan participants have Article III standing to enforce ERISA provisions and have created various inconsistent standards for determining standing. In fact, the United States [via the solicitor general's office] has filed at least seven amicus curiae briefs in the courts of appeals on this issue and each time disagreed with the ultimate decision of the circuit court.”
The Pension Rights Center goes on to suggest the “consequences of this circuit disarray are of grave importance to over 40 million people whose retirement benefits are contingent on the proper management of the $3 trillion in pension assets held in ERISA defined benefit plans.”
The Verizon retirees’ petition to SCOTUS is here.