Yesterday, Verizon announced that it will transfer $7.5 billion of pension liabilities to Prudential. As we previously discussed in this blog, many sponsors of defined benefit plans, especially frozen plans, are considering ways to “de-risk” by reducing or eliminating the volatility associated with their pension obligations for financial accounting and pension funding purposes. In April, Ford announced that its pension plan would offer lump sums to 90,000 retirees. In June, GM announced a different pension de-risking approach: GM’s pension plan is offering lump sums to certain retirees in the context of a plan termination. GM retirees who do not elect lump sums (or are not offered lump sums) will have their pensions transferred to an insurance company.
Verizon has taken yet another approach to pension settlements. Verizon’s management pension plan will purchase a group annuity contract under which an insurance company, instead of the plan, will pay retirees’ pensions. Retirees will not be required to make any choices: they will continue to receive the same pensions, in the same form, from the insurance company. Verizon’s pension transfer is expected to close in December of this year. Covington served as ERISA counsel to Verizon in this transaction.
Verizon’s announcement, following Ford’s and GM’s pension settlements, indicates that the pace of pension settlements will continue.