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5th Circuit Okays Annuity De-risking

A court challenge to a corporate pension de-risking move has been rejected by the 5th U.S. Circuit Court of Appeals.

The lawsuit was filed by a number of Verizon retirees who took issue with a 2012 move by their former employer to annuitize the benefits of current retirees by purchasing annuities from Prudential. (Note that this is different from the de-risking option the IRS/Treasury last month said they would no longer allow.) The retirees tried to stop the transaction from proceeding, and when that attempt failed, challenged the move on the grounds that it involved fiduciary breaches and violated various provisions of ERISA.

Having come up short of establishing a cause of action at the district court level (more than once, in fact), they continued to challenge the transaction, including expanding the class of litigants to include current plan participants (on the theory that the transaction impacted their benefits as well). However, according to an analysis by Carol Buckmann of Osler Hoskin & Harcourt LLP, in an unpublished opinion, the 5th Circuit agreed, upholding the district court’s dismissal of all of the claims of both groups of plaintiffs after de novo review.

In Lee v. Verizon Communications, the 5th Circuit held that:


  • The decision to annuitize was not a fiduciary act. Instead, citing longstanding authority going back to the common law of trusts, the court held that the decision to purchase annuities was a settlor, not a fiduciary, activity.

  • ERISA does not require advance disclosure of events that are contingent on a plan amendment, though the possibility of a plan amendment had been clearly disclosed. Moreover, that the possibility of annuitization was not required to be disclosed in the summary plan description (SPD).

  • Participant consent was not required for annuitization of their benefits.

  • Section 510 of ERISA, which prohibits discrimination against participants for asserting protected rights, was not violated merely because the plaintiffs did not have rights to continued plan participation, ERISA coverage or PBGC insurance.

  • Paying $1 billion in fees and expenses as part of the $8.4 billion annuitization was not a fiduciary breach.

  • It was not imprudent to purchase one group annuity contract from Prudential rather than from multiple insurers.

  • Current participants had no standing to challenge the transaction, since they suffered no current harm.


The plaintiffs had also claimed that annuitization was required to be disclosed because it was an event reducing or resulting in loss of their benefits, but the court found no basis for concluding that a loss of PBGC insurance was a reduction in benefits.

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