Verizon Wins Challenge to Pension Transfer; Investment Guidelines Need Not Be Disclosed

In a win for Verizon Communications Inc., the U.S. Court of Appeals for the Fifth Circuit held that only formal, governing plan documents must be turned over upon request to participants in employee benefit plans (Murphy v. Verizon Commc'ns, Inc.,2014 BL 287183, 5th Cir., No. 13-11117, unpublished10/14/14).

The court rejected claims that a Verizon spinoff, a company that later became known as SuperMedia, violated the Employee Retirement Income Security Act by failing to turn over its pension plan's investment guidelines. Instead, the court found that these documents weren't binding on the plan and therefore didn't qualify as formal plan instruments subject to ERISA's mandatory disclosure requirement.

The court's ruling specifically left open the possibility that binding investment guidelines could be subject to mandatory disclosure in another case.

In so holding, the Fifth Circuit aligned itself with the U.S. courts of Appeals for the First, Second, Seventh and Eighth circuits, all of which have held that only formal, legal documents are subject to mandatory disclosure. The Sixth and Ninth circuits have taken a more expansive view of the types of documents subject to disclosure, while the Fourth Circuit has required the disclosure of investment guidelines when they described an employer's obligation to fund the plan.

Although the court weighed in on the participants' disclosure claims, it paid little attention to their class action claims, which challenged Verizon's decision to transfer them to SuperMedia's pension plans following a corporate spinoff. On those claims, the court affirmed the U.S. District Court for the Northern District of Texas's ruling, written by Judge A. Joe Fish, in favor of Verizon “for essentially the reasons expressed” by the district court.

Jeffrey G. Huvelle, senior counsel with Covington & Burling LLP in Washington and counsel for Verizon, praised the court's decision.

“Verizon is pleased that the Fifth Circuit agreed with Judge Fish's well-reasoned decision that Verizon's spinoff complied with ERISA,” Huvelle told Bloomberg BNA on Oct. 15. He added that the document disclosure claims at issue “related to SuperMedia, not Verizon.”

Counsel for the participants and for SuperMedia didn't respond to Bloomberg BNA's requests for comments.

Pension Plan Transfer

The class action stemmed from Verizon's 2006 spinoff of its information services division. As part of the spinoff, Verizon reclassified more than 2,000 of its employees as employees of Idearc Inc. and transferred them to Idearc's pension plans. After exiting from bankruptcy protection in 2010, Idearc changed its name to SuperMedia, and the pension plans became SuperMedia plans.

When the new company ran into financial trouble and began reducing pension benefits, a group of transferred employees filed a class action against Verizon, SuperMedia and related entities, bringing multiple ERISA claims.

The district court dismissed their disclosure and benefit interference claims and later granted class certification on their remaining fiduciary breach and equitable relief claims.

Last year, the district court ruled for Verizon on the employees' challenge to the pension plan transfer, reasoning that Verizon wasn't acting as an ERISA fiduciary when it effected the spinoff and subsequent plan transfer.

On appeal, the Fifth Circuit affirmed this most recent ruling largely without comment, saying that it agreed with the reasoning of the district court.   

Excerpted from a story that ran in Pension & Benefits Daily (10/15/2014).