Corporate pension “de-risking” is growing into what might be one of the greatest threats to retirement security of all time. Pension de-risking is the off-loading of pension liabilities to insurance companies often through the purchase of a group annuity contract.
In the last decade hundreds of billions (yes, that’s billions with a “B”) of dollars in retirees’ pensions have been transferred, following Verizon retirees’ experience with the pensions of 41,000 management retirees being sent to Prudential back in 2012.
Why is this such a big issue?
Well, those of us who still have our pensions managed by the employer we worked for, can rest easy that these assets are still protected by ERISA, right? Maybe not!
There is simply no guarantee that those protections will always be there, as a growing army of companies recognize they can transfer their pension assets whenever they choose, leaving an inferior safety net in place to protect the retiree.
Apparently, no retiree is safe from pension de-risking. This includes those of us who are lucky enough to still have our pensions with our former employer. The de-risking trend is so popular, how can we know who is next?
Since 2012, nearly $220 billion has been transferred out of federally insured and protected corporate defined benefit pension plans and converted into less secure group pension annuities.
What is further concerning to retirees is the lack of transparency regarding the unknown financial vehicles our pension assets are being invested in.
It’s staggering that in 2021 alone – a pandemic year – more than $40 billion in U.S corporate pension assets were transferred away to annuity providers! Perhaps these corporate decision makers recognized few were paying attention.
The law has long been on the side of these employers and annuity providers, which is why we are full-throated in supporting proposed federal legislation. It would direct the U.S. Secretary of Labor to review and enhance the fiduciary standards companies must uphold when they choose the safest available annuity provider, consistent with ERISA.
Key provisions of the “Pension Risk Transfer Accountability Act of 2021,” sponsored by Rep. Frank Mrvan of Indiana and Senator Chris Murphy of Connecticut has been incorporated into the Rise and Shine Act which is currently pending before the Senate Committee on Health, Education, Labor and Pensions. There has also been renewed focus on reporting and disclosure requirements which will help make pension de-risking more transparent.
This federal legislation is a step in the right direction for the enhanced protection of our retirement assets, once they are cast away by our former employers. It’s why our support and collaboration with the non-profit Retirees for Justice is so critical.
With passage of this legislation, America’s retirees would be better protected from the risks of future third-party transfers to other Wall Street investors or insurance entities whose policies are opaque.
This article was first published in the Fall 2022 BellTel Newsletter.
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