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For More Information Contact:

Alan M. Sandals, Esquire                                              Ed Beltram

Sandals & Associates, P.C.                                            Lucent Retiree Organization

Phone: 215-219-3170 or (215) 825-4000                         Phone: 719-687-6157

Email:                                  Email:


Federal Judge Rules Lucent Technologies Violated Law

By Failing To Maintain Medical Benefits For Retirees


NEWARK, N.J. (June 12, 2008) – A federal district court judge has ruled that Lucent Technologies, now known as Alcatel-Lucent, violated the requirements of Section 420 of the Internal Revenue Code in administering its health care plan for management retirees during the period 1999-2006.

Lucent retiree plaintiffs had charged in a lawsuit filed on October 24, 2005 that, following several transfers beginning in September 1999 of excess pension assets to a retiree health care trust, Lucent failed to meet its “benefit maintenance” obligations for the years 1999 through 2003 and its “cost maintenance” obligation for the years 2004 through 2006, as mandated by plan provisions incorporating these requirements of Internal Revenue Code Section 420.

In a 40-page opinion released this morning, U.S. District Judge Peter G. Sheridan ruled that the federal Employee Retirement Income Security Act (ERISA) statute and the intent of Congress were very clear.  Companies that take advantage of the special provision permitting transfers of excess pension funds to fund retiree health care benefits must comply with strict requirements that for a period of five years benefits be maintained at the same level as in the year preceding the first transfer.  This “maintenance of benefit” rule was triggered by Lucent’s first transfer of approximately $183 million on September 29, 1999.

The court ruled before trial on motions for summary judgment that the evidence at least established that Lucent breached its obligations to maintain benefits for the year 2003.  Regarding the other years in the period 1999-2003 that are in dispute, the court ruled that the evidence did not permit a determination one way or the other and ordered discovery to continue as to Lucent’s liability for years 1999 through 2002 under the “maintenance of benefit “rule as well as Lucent’s liability for “maintenance of cost” for the years 2004 to 2006.

      The attorneys for the retirees presented estimates to the court that Lucent’s liability for failing to follow the benefits maintenance rule for year 2003 was approximately $ 76.3 million exclusive of interest.  Lucent’s liability for other years – 2000, 2001, 2002, 2004, 2005 and 2006 – are to be determined in later proceedings.

      “This is a significant victory for Lucent retirees who have seen the cost of their company-sponsored health care insurance increase substantially since 2000,” said Alan Sandals, lead attorney for the Lucent retirees.  “While the court believed that the evidence assembled so far only permits a determination of a violation during the year 2003, we believe that further discovery and analysis will lead to findings of violations during other years as well.”

      The lawsuit challenged Lucent’s reductions and terminations of retiree medical and prescription drug benefits, as well as increased co-pays and increased contribution requirements after the company made transfers from the management pension trust fund totaling $ 888.2 million to offset Lucent’s obligations to pay for retiree medical benefits. Congress enacted strict conditions to ensure that participants did not experience benefits reductions at the same time the funding of their pension plan was being tapped by the employer.


The lead plaintiffs in the proposed class action lawsuit are Peter and Geraldine Raetsch of Reading, Pa. and Curtis Shiflett of Macungie, Pa.

“We commend the Lucent retirees and their attorneys for standing up for the rights of all Lucent retirees,” said Andy Guarriello, President of the Lucent Retirees Organization. “Although the LRO couldn’t be a plaintiff in this type of lawsuit, we have closely followed the case and provided the plaintiffs’ attorneys with documents relating to the company’s benefit plans.”

            In arriving at its ruling, the court sharply criticized the conduct of both Lucent and a “Special Committee” formed at the judge’s request to assist in evaluating the allegations and resolving the issues raised by plaintiffs.  Regarding the company, the court rejected Lucent’s contention that Plaintiffs’ claims were not timely filed, noting evidence that Lucent caused its own dilemma:

 “As noted earlier, the evidence in the record is that Lucent undertook minimal, if any, steps to ascertain its MOE [Maintenance Of Effort] requirement or communicate those requirements to the retirees. At the very least, Lucent should have hired independent counsel or auditors to monitor its MOE obligation in order to assist it in determining its obligations during the MOE period. Having failed to do so, Lucent opened itself up to this risk.

“In addition, there is evidence that Lucent envisioned this law suit. In late 2002, management advised the Benefits Committee that jacking up co-pays and deductibles may give rise to complaints and claims by retirees. They stated that "certain actions could generate participant law suits." Accordingly, it is disingenuous for Lucent to argue that Lucent had no notice of the potential claims or is prejudiced by allowing this suit to proceed.”

      Regarding the Special Committee, in an October 2006 ruling, the court had ordered Lucent’s Employee Benefit Committee to address several of plaintiffs’ charges.  But instead the committee delegated its authority to three senior Lucent executives, all of whom were eligible for enhanced pension and bonuses based on company performance. Quoting the court:

The record does not reflect any reason why these individuals were chosen. Apparently, these individuals have no special expertise or experience with regard to § 420 transfers…”

“The Special Committee failed to engage in two important tasks. First, it did not determine to any degree of specificity Lucent’s changes in health benefits during the MOE period; nor did it investigate the discussions and decisions reached by Lucent at the time of each § 420 transfer or adjustment to the medical plan during the MOE period. There is no indication that the Special Committee interviewed any persons at Lucent who had knowledge about the § 420 transfers and changes in benefits. Instead, the Special Committee confined itself to the issues raised by the plaintiffs.

“(T)he the Court specifically directed that the Trustees… “report its factual and legal finding to the Court”….To the contrary, the Report of the Special Committee noticeably lacks any detailed facts as to the events which occurred within Lucent from 1996 through the date this law suit was filed.  Not even the most basic measures to ascertain the facts were undertaken such as interviewing those employees who were involved with the transfers."

The court also noted that fiduciary responsibilities attached to the Trustees to investigate the charges:

“Second, the Trustees, as fiduciaries to the Plan ….had an ongoing obligation to make certain that Lucent fulfilled its Section 420  MOE obligation. ..The record is void of any such evidence. As noted previously, there was only one substantive presentation regarding same. Sometime in 2002, management alerted the Benefits Committee that changes to the retiree medical plan carried “risk” pursuant to its MOE obligation; however, there is nothing in the record which reflects that the Trustees took any actions to determine whether the Plan was in compliance with its Section 420 obligation at that time. Moreover, with knowledge of the risk, the Directors authorized more changes in the form of higher co-pays and deductibles. Any reasonably diligent Trustee would have taken steps to ensure compliance. Obvious steps such as obtaining an opinion from Lucent’s counsel or auditors were not taken.”

      And finally: “Although the Court does not make any conclusion based on the above, it looks upon the actions of Lucent and the Trustees with a great deal of circumspection.”


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