In late July, Association Special Counsel Edward Stone had the opportunity to testify before the Employee Retirement Income Security Act (ERISA) Advisory Council in Washington D.C. He appeared on behalf of our Association of BellTel Retirees, Retirees for Justice, along with the Association of DuPont Retirees, and GE Retiree Solutions.
The ERISA Advisory Council is made up of 15 members appointed by the U.S. Secretary of Labor to advise the Department of Labor on policies and regulations affecting employee benefit plans that are governed by ERISA.
The Council meets at least 4 times each year, discussing issues, taking testimony, and ultimately making recommendations to the Department of Labor.As many of you know, this was not the first time Mr. Stone appeared before the ERISA Advisory Council.
In May 2015, our late Chairman Jack Cohen traveled to Washington D.C. together with Mr. Stone and provided testimony regarding “model notices” and disclosures for pension de-risking transactions, addressing the question of: what useful information do participants need, to make an informed decision in a risk transfer transaction, and how would you suggest getting this information to participants?
Stone said, “It was great to be back in the nation’s capital, this time addressing potential revisions to the regulations governing the fiduciary standards pursuant to a review mandated by Congress in the Secure Act 2.0, Section 321.”
BellTel and Retirees for Justice were among early advocates in 2022 of the Secure Act’s predecessor legislation. The Council took testimony from 17 individuals, organizations, and companies specifically with regard to Interpretive Bulletin 95-1 which relates to the fiduciary standards applicable to a defined benefit plan sponsor when selecting an annuity provider, in a pension de-risking transaction.
Before the meeting, the Association provided the ERISA Advisory Council with written submissions advocating for revisions to the Interpretive Bulletin and a statement by BellTel board member Don Kaufmann advocating for changes to the current rules in order to “put the teeth back into ERISA.”
Stone testified, saying, “Retirees want transparency and accountability when it comes to their pensions. Retirees want to know what is going on and why; most importantly, they want to know that their pensions are safe and secure.”
You, the retirees, were once the lifeblood of the company you worked for, and you want your former employer to live up to the promises it made with respect to your retirement benefits. If your former employer transfers its pension liabilities to an insurance company, you want to ensure they make a careful, well-reasoned, and financially sound decision that is in the best interest of the impacted retirees when choosing the safest available annuity provider.
We may not be able to stop pension de-risking, but we can certainly support laws and regulations that force defined benefit plan sponsors and annuity providers/insurance companies to be more transparent and accountable to retirees.
The ERISA Advisory Council will continue its investigation of the need, if any, to revise Interpretive Bulletin I-95 and will prepare a report for the Department of Labor later this fall. Then the Department of Labor will present its findings to Congress on or before December 31, 2023.
The Secure Act 2.0
As we told you in early January, on December 29, 2022, President Biden signed into law the Secure Act 2.0 as part of the year-end omnibus spending act, formally known as the “Consolidated Appropriations Act, 2023.” Two of the provisions of the Secure Act 2.0 related to pension de-risking.
One of these, Section 321, directed the Department of Labor to review the existing Interpretive Bulletin 95-1 and report to Congress within one year.
This is the existing Interpretive Bulletin that relates to the fiduciary standards applicable to a defined benefit plan sponsor choosing to de-risk, setting out the factors the sponsor should consider when choosing the safest available annuity provider.
The Interpretive Bulletin has not been updated since 2008, and many things have changed in the world of insurance since 2008.
Why is the choice of annuity provider so important?
Many of you are among the 41,000 Verizon retirees who were subjected to pension de-risking in 2012 when Verizon transferred $7.5 billion in pension liabilities to Prudential Life Insurance Company of America.
In a pension de-risking transaction, retirees lose all of the uniform protections intended by Congress under ERISA, including the protections offered by the Pension Benefit Guaranty Association (PBGC), as retirees’ rights become subject to non-uniform state laws.
The only companies in the U.S. that can provide group annuity contracts are insurance companies. Under the McCarran-Ferguson Act, the insurance companies are regulated at the state level. If the insurance company that takes over your pension goes belly up, that means bad news for your pension payments. And while insurance insolvencies are rare, they do happen.
So, it is incredibly important that the plan sponsor make a sound choice when picking the insurance company that will take over your pension payments, forever.
Take Aways from the Council Meeting
The ERISA Advisory Council and the Department of Labor treated this subject matter at the meeting very seriously. Everyone on the Council, those representing the Department of Labor, and the large majority of those testifying, recognized that protecting retirees is of the utmost importance.
It was uplifting to see so many people and organizations sounding warning alarms about private equity firms getting involved in the insurance industry.
What we need to do now is what we all do best—advocate!
Now is the time for us to seek stricter fiduciary standards under Interpretive Bulletin I-95, amendments to ERISA to strengthen its protective purposes, and state laws replacing those lost in pension de-risking transactions.
Be an active Association member and please help us to lead the fight to protect your earned pensions and benefits.
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