As a growing number of large U.S. companies announce plans to “de-risk” their traditional defined benefit plans to lower their pension obligation and retiree distribution costs, the Pension Rights Center called for a moratorium on such actions until Congress can look into the risks these strategies pose to workers and retirees.
On Oct. 17, Verizon joined General Motors in saying that it is transferring the pensions of approximately 41,000 retirees, valued at a total of $7.5 billion, to an insurance company that will administer an annuity contract to pay the benefits. GM, Ford and several other companies also have made lump-sum buyout offers to certain retirees and former employees in recent months.
“These employers are looking to cut costs and reduce long-term liabilities to make their companies more attractive to investors, but ‘de-risking’ can be risky for workers and retirees,” said Karen Friedman, the center’s executive vice president and policy director, in a press release.
“Insurance company annuities backed by State Guaranty Associations could leave retirees with less protection than the pensions provided by their companies backed by the insurance provided by the Pension Benefit Guaranty Corporation. Also, lump sums place the burden on individuals to ensure that the money lasts throughout retirement. We need to stop, take a breath, and make sure that the retirement security of the people affected by these moves is fully protected,” Friedman said.
The center plans to ask Congress to take steps to put a temporary halt to pension offloading and lump-sum buyouts so policymakers have time to examine whether these strategies could affect retirement security.
“How secure are the annuities that are being purchased in plan terminations?,” Friedman said. “What is the exposure of the insurance companies that are taking on these large group annuity contracts? Do people understand the consequences of taking a lump sum? These are the types of questions that we want to make sure are addressed.”
The Pension Rights Center has compiled a list of companies that are making lump-sum offers, and offers assistance to workers who may be considering taking one of these payouts or who have had their retirement benefits transferred to an insurance company.
Finding out More
For more information on annuities, see ¶266 in The 401(k) Handbook.