5th Circuit Denies Pension De-risking Challenge

In Lee v. Verizon Communs., Inc., 2015 U.S. App. LEXIS 14588 (5th Cir. Tex. Aug. 17, 2015), a case closely watched by defined benefit plan (DBP) sponsors, the insurance industry, and ProtectSeniors.org, a retiree advocacy group, a three judge panel rejected the plaintiffs’ challenges to Verizon’s decision to de-risk its pension obligations by removing over 41,000 retirees from the DBP and purchasing a group annuity contract to cover their pension payments. The 5th Circuit concluded that Verizon’s decision to amend its DBP to permit the annuity purchase was not a fiduciary decision and did not require that the annuity remain an asset of the DBP. Once Verizon had purchased the group annuity contract, the 41,000 retirees who were “lifted out” of the DBP no longer had any of the protections offered by ERISA or the Pension Benefit Guaranty Corporation (PBGC). While pension de-risking is advantageous to plan sponsors, it has serious risks to plan participants, retirees, and their families, some of which may not be felt for years to come.  Will it take the collapse of another life insurer for folks to care?