Employees of AT&T, which is headquartered in Dallas, Texas, may have heard that their pension plans could soon change quite dramatically. Last month, AT&T asked the U.S. Department of Labor to allow it to put newly-created shares of its stock into the company’s pension plan. This request is quite interesting because this type of investment risk is actually prohibited by the federal Employee Retirement Income Security Act, which is the law governing retirement plans.
AT&T has asked to be exempted from this prohibited transfer provision of ERISA in order to dump shares worth a reported $9.5 billion into the pension fund. These shares do not come with any voting or management rights.
Under ERISA, pension funds may contain a maximum of 10 percent company stock. If the Department of Justice approves the wireless carrier’s request, this would increase to 18 percent of plan assets.
The company has explained that the transaction will have a positive impact on its credit profile. Additionally, at the end of 2011 AT&T’s pension plan was underfunded by more than $10 billion, so putting stock into the pension will help AT&T keep its cash on hand.
Of course, having a high concentration of a single asset in a pension is risky for the plan participants, and this is why ERISA has the 10 percent limit. The Department of Justice is not expected to rule on the request until 2013.
ERISA requires employers to act in the best interests of their employees and when they fail to do so their employees can seek legal recourse.
Source: Forbes, “AT&T Proposes Massive Dump of Company Stock Into Pension,” Edward Siedle, Oct. 25, 2012