Verizon Communications Inc. recently finalized a $5.9 billion transaction involving the transfer of pension responsibilities for 56,000 former union and management retirees to Prudential Financial Inc. and Reinsurance Group of America Inc. (RGA). The Association of BellTel Retirees, in response to this development, is advocating for enhanced safeguards for Americans' pension assets.
The agreement entails Verizon acquiring a single-premium group annuity contract for the aforementioned retirees or their beneficiaries, all of whom ceased employment prior to January 1, 2023. Scheduled to commence on July 1, 2024, the third-party pension annuity transfer marks a significant step in the management of retiree benefits.
This transaction represents the second major instance of pension restructuring affecting Verizon retirees. In 2012, the telecommunications giant allocated $8.4 billion to Prudential and moved pension assets for 41,000 management retirees. Legal action ensued, with the Association of BellTel Retirees challenging the maneuver's legality in a class-action lawsuit that reached the United States Supreme Court.
The practice of transferring defined benefit pension obligations to insurers and private equity investors, commonly known as pension risk transfer (PRT) or pension stripping, enables corporations to distance themselves from their fiduciary duties to retired personnel who earned pension entitlements. Consequently, retirees face the loss of rights and protections established under the Employment Retirement Income Security Act of 1974 (ERISA).
Moreover, pension annuity transfers effectively eliminate the safety net provided by the federally managed Pension Benefit Guaranty Corporation (PBGC), compounding the vulnerability of retirees who rely on their pensions for financial security.
“Corporations frame this as a benign way to reduce costs, but pension stripping presents multiple risks and no upside to the retirees,” said Thomas Steed, Chairman of the Association of BellTel Retirees. “Verizon and other corporations are stripping millions of vulnerable American retirees of their safety net. They’re cutting the legs out from under the strong federal protections guaranteed by ERISA law, along with protections from the PBGC.”
Following Verizon's 2012 pension asset transfer, American corporations have collectively shifted over $300 billion in retiree assets to insurance annuity providers and private equity investors. With the recent pension asset transfer to Prudential and RGA, retirees argue that Verizon has now removed a total of 97,000 defined benefit pensioners from the security of the company's pension program, amounting to more than $14.3 billion.
“Insurance companies are not regulated by the federal government but are overseen by individual state regulatory bodies under the McCarran-Ferguson Act,” said BellTel Board Secretary Donald Kaufmann, who recently provided testimony to the Department of Labor ERISA Advisory Council. “With group annuity contracts governed by individual state laws, retirees are no longer under ERISA’s uniform federal protections. This is why BellTel has been working to enact de-risking controls at the state levels. We recognize the risk inherent in insurance subsidiaries or offshore private equity affiliates controlling billions of retiree pension funds. We must fight to strengthen ERISA.”
Federal scrutiny and public hearings in 2023, prompted by the Secure Act 2.0, have focused on pension annuity transfers, highlighting concerns about the increasing frequency and monetary value of these transactions and their potential impact on America's retirement security.
According to retiree advocates, these transactions expose retirees to higher risks, as they may face vulnerability in scenarios involving default, bankruptcy, or legal judgements. Unlike defined benefit pensions, which offer protection in such situations, annuity contracts' security may vary depending on the applicable state laws.
According to Edward Stone, special counsel to the Association of BellTel Retirees and Executive Director of the non-profit Retirees for Justice, Verizon’s deal raises red flags. He asserts that “Prudential Insurance Company of America (PICA), a licensed and regulated subsidiary of Prudential Financial Inc., is heavily dependent on Arizona-based captive reinsurance companies that do not file publicly available financial statements under Statutory Accounting Principles.”
“Arizona is a ‘regulation light’ jurisdiction where reinsurance captives are allowed to maintain secret books and records,” Stone said. “Given how much retirees lose in these pension risk transfer deals, it’s a shame that companies like Verizon cannot be more transparent and accountable when it comes to retirees and their livelihoods.”
The Association of BellTel Retirees is a 134,000-member non-profit advocacy group that works for the protection of retirees’ pensions and benefits of the former Bell System and its current and former affiliates.
Source: Belltel
