Nov. 4 (Bloomberg) -- Verizon Communications Inc. defeated a group lawsuit over pension payments that may have cost the second-largest U.S. phone company about $1.67 billion.

Cynthia Young, who worked for more than 30 years at Verizon and predecessors including Bell Atlantic, claimed the company calculated pensions incorrectly in a class-action suit filed on behalf of employees in federal court in Chicago.

The complaint was brought after Verizon mistakenly included language in its pension plan documents, U.S. Magistrate Judge Morton Denlow wrote in a ruling issued Nov. 2. The mistake was in a formula for converting Bell Atlantic employees onto the same pension system following a series of mergers. The new calculations would have almost tripled the opening balances that some employees had accrued, according to the ruling.

Denlow concluded that Young and her co-workers “are not entitled to any additional plan benefit distributions by reason of this litigation.” Denlow said the case “raises novel legal issues with billion-dollar consequences” and that he expects an appeal.

“We’re disappointed with the outcome, and we’re considering all of the options, including a possible appeal,” Matt Hurst, a partner with Susman, Heffner & Hurst LLP, said in a phone interview.

Verizon rose 3 cents to $29.10 at 4 p.m. in New York Stock Exchange composite trading. The stock has dropped 14 percent this year.

Plan’s Liabilities

The calculations may have resulted in an increase of $1.67 billion in the pension plan’s liabilities, Denlow said. More than 136 participants would have received a boost of more than $500,000 in their opening balances. Almost 5,800 members would have gotten more than $100,000. Some employees would be eligible for a raise of almost $1 million.

“The court’s decision provides helpful guidance on the circumstances where ERISA plans may be reformed without undermining ERISA’s requirements,” said Jeffrey Huvelle, the lead counsel from Verizon’s law firm Covington & Burling, referring to the pension plan law known as the Employee Retirement Income Security Act. “A key factor was that no plan participant relied on the mistaken language in the plan,” he said in an e-mailed statement.

Denlow said it’s unknown how much the increase in opening balances would affect actual benefits because some participants were eligible to receive benefits under alternative programs.

The case is Young v. Verizon’s Bell Atlantic Cash Balance Plan, 05-07314, U.S. District Court, Northern District of Illinois (Chicago).

To contact the reporters on this story: Amy Thomson in New York at athomson6@bloomberg.net.

Last Updated: November 4, 2009 16:10 EST