Verizon Is Latest Major Firm to Adopt Multi-Billion Dollar Pension De-Risking Strategy
Verizon Communications, Inc. (Verizon) joined the growing rank of companies (including Ford and
General Motors) that are adopting strategies to reduce the size of their defined benefit plan pension
liabilities and better manage their pension benefit risk. In its Securities Exchange Commission (SEC)
Form 8-K filing and associated news release dated October 17, 2012, Verizon indicated it entered into a
definitive purchase agreement with The Prudential Insurance Company of America (Prudential) and
Prudential Financial, Inc., under which the Verizon Management Pension Plan will purchase a single
premium group annuity contract from Prudential to settle approximately $7.5 billion of pension benefit
liabilities owed to a select group of Verizon management retirees. The transaction is expected to
culminate in December 2012. Verizon is required to notify the Pension Benefit Guaranty Corporation
(PBGC) of the transaction pursuant to Section 4043 of the Employee Retirement Income Security Act of
1074 (ERISA).
Presuming the deal closes, beginning July 1, 2013, Prudential will take over the obligation to make
future annuity payments to approximately 41,000 Verizon management retirees who began receiving
pension payments from the plan prior to January 1, 2010. As the agreement stands, there will be no
changes in the value of the retirees’ accrued benefits; no changes to the amount of the annuity
payments that the affected retirees’ receive; no changes to their rights of future payments (such as for
survivor benefits); and no delays in the receipt of benefits. This is in compliance with ERISA, which
requires firms to honor accrued pension benefit obligations.
Verizon expects to make additional contributions to the plan prior to the closing date of the deal with
Prudential. The agreement includes a closing condition that would allow Verizon to terminate the
agreement if the required contribution exceeds a designated level. If that were to happen, the benefit
payment obligation would remain with Verizon.
The SEC filing indicates affected retirees can expect to receive individualized information soon with
further details about the transaction, along with a series of frequently asked questions. No doubt this
recent Verizon announcement will raise questions among the Verizon management retirees affected by
the change—but will likely raise questions among all other Verizon employees as well. Financial
advisors should anticipate receiving inquires from their Verizon clientele, whether they are specifically
affected by this announcement or not. Verizon’s change to its management pension plan follows
several other similar changes announced by other major U.S. employers for their pension plans (e.g.,
General Motors and Ford). This developing industry movement towards pension de-risking creates a
charged environment in which financial advisors who have superior retirement savings and income
planning knowledge have a distinct advantage in working with clients and prospects.
Summary of key information
What plan is affected?
The Verizon Management Pension Plan
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Who is affected?
Only Verizon management retirees who began receiving pension payments from the plan prior to
January 1, 2010, will be affected.
Who is NOT affected?
In general, the following Verizon Management Pension Plan participants are not included in the pension
transfer:
• Active employees
• Former employees who have not yet started receiving a pension benefit or who had started receiving
pension benefits on or after January 1, 2010
• Participants receiving disability pension benefits who will be under age 65 on December 31, 2012
• Former employees who were represented by a union during their employment with Verizon or had
their pension benefit based on the terms of a collective bargaining agreement.
• Retirees receiving pension benefits from the Pension Plan for Employees of MCI Communications
Corporation and Subsidiaries, which is a component of the Verizon Management Pension Plan.
In addition, former management retirees whose benefit is payable from the Verizon Enterprise
Management Pension Plan (now part of the Verizon Pension Plan for Associates), are not included in the
pension transfer.
Individuals receiving monthly pension benefits from more than one Verizon pension plan may continue
to receive part of their monthly pension benefit from the Verizon Pension Trust and part of their benefit
from Prudential.
Must affected Verizon management retirees take any action?
No, the switch in paying entity will be automatic. Verizon has stated that no decision or other action will
be required of the affected retirees in order to continue receipt of existing benefits.
When will the change take place?
The transaction is expected to close in December 2012. Provided it does, it is anticipated Prudential will
assume benefit payment obligations by July 1, 2013.
©2012 Retirement Learning Center, LLC