Class Action Filed on behalf of DuPont retirees

 

The class action lawsuit, Thondukolam v. Corteva, Inc., was filed in the United States District Court for the Northern District of California, case number 3:19-cv-03857-SK.

The proposed class includes more than 100,000 people, including retirees and beneficiaries in the pension plan. Edward Stone Law PC is working with Beasley Allen, Kantor & Kantor, and Sinclair Law Firm, to represent the retirees.

In 2015, the 217-year-old DuPont merged with Dow Chemical to create DowDuPont. In 2019, the new corporate entity split into three new companies Corteva, DuPont and Dow. Corteva is a combination of DuPont and Dow agriculture businesses. Through this scheme, DuPont and Dow shifted all liability for the DuPont U.S. pension, which has covered DuPont employees in America since 1904, to the newly created Corteva. The liability of the DuPont U.S. Pension plan is approximately $19 billion.

Plaintiffs argue that Corteva, which solely focuses on agriscience business, understates its liabilities including income fluctuations due to weather, global trade, and other factors beyond the company’s control. Additionally, the agriscience business involves the manufacture of chemicals already subject to large-scale litigation, the liability for which was also transferred to Corteva. Other corporate spin transactions of DuPont have also come under scrutiny. Plaintiffs also contend that under Corteva the pension plan is underfunded and uses overly optimistic estimates. Now that Corteva, Dow, and DuPont are three separate companies, Corteva can file for bankruptcy and discharge its responsibility to fund the promised pensions, leaving retirees to receive pennies on the dollar. Neither DuPont nor Dow will be affected by such a bankruptcy.

“Because of the Defendants’ actions, the plan, which was already in a downward funding spiral, is now left with an empty shell company as a plan sponsor, linked to a newly formed company that is also saddled with all of the environmental and agricultural liabilities of the historical Dow/DuPont companies. This completely separated the new, stable Dow and DuPont companies from any repercussions should the pension fail. The Defendants have attempted to avoid a legally required $6 billion funding obligation to the plan and thereby breached their fiduciary duties to the Plan as well as violated ERISA’s employee protective purpose. This lawsuit will correct this misconduct by the plan sponsors.” said W. Daniel “Dee” Miles, head of Beasley Allen’s Consumer Fraud Section.

Favorable Decision for Executive Life Victim Trevor Langkamp

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Trevor Langkamp was the recipient of one of the dreaded notices from the New York Liquidation Bureau in December, 2011 telling him that his annuity benefits from Executive Life Insurance Company of New York would be cut. The liquidation of Executive Life Insurance Company of New York (ELNY) was finalized in April, 2012 and despite the best efforts of Edward Stone Law, reductions in annuity benefits took effect on August 8, 2013.

Langkamp was injured in a fire when he was just 17 months old at a U.S. Army facility, and Langkamp’s parents sued the United States.  In 1984 Langkamp and the United States settled their lawsuit.  The U.S. purchased two Executive Life annuities to provide a lifetime of periodic payments to Langkamp. In 2013, with the ELNY liquidation finalized, Langkamp’s periodic payments were cut by more than 40%. Langkamp filed suit against the U.S. in the Court of Claims in 2015, seeking to hold the United States liable for his shortfall.  He lost at the trial level, with the court dismissing his claims and holding that “the government has not unequivocally agreed to guarantee the monthly and periodic lump-sum payments required under the [settlement] agreement.” On appeal, the U.S. Court of Appeals for the Federal Circuit determined that the trial court had erred in holding that the U.S. had no continuing liability for Langkamp’s periodic payments, and remanded the case to the Court of Claims for proceedings consistent with its opinion.  Looks like Mr. Langkamp will be one of the few Executive Life shortfall victims to recover his shortfall from the United States.

Lockheed Martin Pension Risk Transfer to MetLife

Bethesda, Maryland based Lockheed Martin Corp. transferred $1.9 Billion in pension obligations for 20,000 US retirees to a subsidiary of MetLife, Metropolitan Tower Life Insurance Co. Lockheed Martin has done at least two previous pension risk transfers to insurance companies.  In January 2019, Lockheed Martin transferred $1.8 Billion in pension obligations to Prudential and also transferred $800 million to Athene Annuity & Life Co. in an annuity “buy-in” impacting approximately 9,000 Lockheed retirees.  For more on “buy-in” transfers, click here to see a previous post by Edward Stone Law. Lockheed Martin contributed $5 Billion to its pension plan during 2018, and $1 Billion in 2019.

Voya Sells to Resolution Life

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On December 18, 2019, Voya Financial, Inc. and Resolution Life Group Holdings Ltd. announced the terms of an agreement where Voya sold substantially all of its in-force life business, including its pension risk transfer liabilities for $1.250 Billion, which included cash of $902 Million, and retained surplus notes of $123 Million. Resolution Life will assume responsibility for the administration of all acquired business. This deal is expected to close in late 2020.

Pension Risk Transfer: Annuity Buy-In or Buy-Out

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What is the difference between a pension risk transfer via an annuity “buy-in” or “buy-out?”

With an annuity “buy-in” a plan sponsor purchases one or more group annuity contracts to cover pension obligations with the plan sponsor remaining responsible for making payment to the plan participants.

With an annuity “buy-out” the defined benefit plan sponsor transfers all of its pension liabilities to an insurance company by purchasing a group annuity contract and terminates its defined benefit plan.  A variation on the annuity “buy-out” is the “lift-out” where the plan sponsor purchases an annuity contract to cover the benefits of certain retirees, but other retirees remain covered by the pension plan and the plan is not terminated.

In August 2019, the LIMRA Secure Retirement Institute reported that “buy-ins” totaled more than $880 million in the second quarter of 2019.  “Buy-outs” for the same period  surpassed $4.7 billion.

Pension Risk Transfer – Facts from 2019

Pension risk transfer facts for 2019:

First Quarter 2019:

  • 78 “Buy-out” group annuity contracts purchased by Plan Sponsors
  • “Buy-out” purchases surpassed $4.7 Billion

Second Quarter 2019:

  • 112 “Buy-out” group annuity contracts purchased by Plan Sponsors
  • “Buy-out” purchases were $4.166 Billion
  • “Buy-in” purchases were $880 Million. This represented the 5th consecutive quarter with the sale of at least one “buy-in” contract

Third Quarter 2019:

  • 111 “Buy-out” group annuity contracts purchased by Plan Sponsors
  • “Buy-out” purchases were $7.732 Billion
  • “Buy-in” purchases were $0

We will update this Blog Post as we sort through the facts and figures of 2019, and receive updated figures for the fourth quarter.

Boise Cascade Continues Pension De-Risking

Boise Cascade, the Boise, Idaho based manufacturer of building materials, has purchased its third group annuity contract from Prudential Insurance Company of America.  According to its 8-K filing, $19.8 million in pension assets were transferred to Prudential, representing approximately 10% of Boise Cascade’s projected U.S. qualified pension plan obligations. This is Boise Cascade’s third transaction with Prudential.

Rogers Corp. Terminates Pension Plan

In late October, Rogers Corp., a global materials manufacturer and one of the oldest public companies in the U.S., announced the termination of its U.S., non-union, pension plan.  Rogers transferred $163 Million in pension liabilities in a combination of lump-sum distributions and the purchase of a group annuity contract.  In its Q3 earnings call, CFO Michael Ludwig, stated that: “As highlighted in our earnings press release the company terminated a pension plan in the fourth quarter. The pension plan was adequately funded therefore the company was not required to make additional cash contributions to fund the plan. The company will however take a $52 million to $56 million non-cash charge to income for other accumulated losses for the plan that were recorded as part of our equity.”

Owens Corning Transfers $89 Million of Pension Liabilities

In October, Owens Corning, the Toledo, Ohio based manufacturer of insulation, roofing, and fiberglass composites announced the transfer of  $89 Million in pension liabilities, along with $83 Million in plan assets to an undisclosed insurance company.  According to Pension & Investments, the pension risk transfer affects retirees receiving monthly benefits of less than $600 per month.

AK Steel Announces Pension Risk Transfer

Massachusetts Mutual Life Insurance Company will take on the pension liabilities from AK Steel Holding Corp. for 4,250 retirees on March 1, 2020.  This pension risk transfer allows West Chester, Ohio based AK Steel to transfer $615 Million in pension liabilities and marks its second pension de-risking transaction with Massachusetts Mutual.  In 2018, AK Steel transferred approximately $280 Million in pension liabilities effecting 5,400 retirees. On Wednesday, November 21, 2109, the company announced: “We are pleased to have completed another annuity transaction, which brings the total pension obligations we have transferred to highly-rated annuity providers to about $1.1 billion over the past three years,” said Roger K. Newport, Chief Executive Officer of AK Steel. “This is another important step in de-risking our balance sheet, while continuing to demonstrate our commitment to ensuring our retirees’ benefits are secure.” As a result of this transfer, AK Steel will record a non-cash pension settlement charge of $25 Million in Q4 2019.

Lennox International Pension De-Risking Continues

In late October, Lennox International Inc., the Richardson, Texas based HVAC manufacturer announced that it was transferring $75 Million in pension liabilities to Pacific Life Insurance Company. In a Q3 earnings call, Lennox CFO Joseph W. Reitmeier stated that: “Similar to what we did in the second quarter, this pension settlement charge relates to an agreement we entered into with Pacific Life Insurance Company in October to annuitize $78 million of our defined benefit pension obligation. As part of this transaction, we also transferred $75 million in pension assets to Pacific Life.”  This is the second pension risk transfer for Lennox.  In April 2019, Lennox transferred $100 Million to Pacific Life.