Court Rules Against Lucent

NEWARK, N.J. -- 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."

Alcatel-Lucent (NYSE: ALU)