Workplace Issues

Verizon Communications Inc. said last month that it would transfer $7.5 billion of its pension obligations , covering 41,000 management retirees, to Prudential Insurance The deal effectively turns the company's defined-benefit pensions into annuities.


Members of the Association of BellTel Retirees sued in federal court in Dallas on Tuesday. They're seeking a court order to halt the deal, which is set to close in December.


They note that annuities aren't covered by the federal Pension Benefit Guaranty Corp. A shortfall in the assets backing the annuities would be replaced by a "patchwork network of state guaranty associations, many of which are underfunded," the group said.


"Retirees and their spouses, especially in states with the lowest protection levels, will be seriously harmed and left with as little as two years pension replacement in case of insurer default," said William Jones, president of the retirees' association.


Randal S. Milch, New York-based Verizon's general counsel, said the suit lacks merit, adding that Prudential has a long history of providing group annuity benefits.


"Prudential is providing an irrevocable commitment to make all future annuity payments, and this promise will be supported by the extra protection of assets being placed in a separate account at Prudential dedicated to Verizon retirees," Milch said.


When it was announced, Verizon said the deal lowers the risk that its pension obligations will end up costing more than projected.


Consulting firm Aon Hewitt, which helped Verizon on the deal, said it was the second largest insured annuity settlement ever in the U.S. This summer, General Motors Corp. said it would settle $26 billion in pension obligations through lump sum payments and purchases of Prudential annuities


Verizon has a total of $30 billion in outstanding pension obligations including the $7.5 billion slated to be transferred to Prudential.

Some very basic information about this subject is given below, and while not meant to be all encompassing it should be sufficient enough to provide a general outline of the differences between the two.

An Annuity is a financial instrument designed and often provided by an insurance or investment company to give an investor a set and sometimes somewhat guaranteed rate of return on that investment. Insurance companies provide a type of insurance that is often called "variable life" or some variable on that term that not only gives the purchaser a set amount of coverage on their life should they die, but also builds up a nest egg for them that after a set amount of time the purchaser can then start to draw against and provide them a monthly or yearly income.

A Structured Settlement is something that is usually awarded to an individual by a court of law after a lawsuit following an accident whether it be an automotive accident that caused serious injuries, an injury suffered in the workplace, or other situation where an individual was caused physical harm due to neglect or the actions of another person, company, or business. These cases can vary from the things mentioned above to things such as product liability cases, where someone is harmed by defective manufacturing and faulty products, to health care related injuries caused by an inattentive surgeon or medical doctor. Most people are familiar with the word "malpractice". That term gets used a lot in the health care field.

So while both an annuity and a structured settlement can and often do provide a set amount of income to an individual, the reasons for the pay out are quite different. That is not to say that someone who received a settlement could not use the money and invest it into an annuity type product to attempt to gain even more money over time, but that is a discussion for another article.