Pension plan sponsors that offer to “cash out or annuitize benefits” for former employees would have to report this to the U.S. Pension Benefit Guaranty Corp., the agency has proposed. In a routine information-collection change request to the Office of Management and Budget posted Sept. 23 (79 Fed. Reg. 56831), PBGC said it intends to revise its 2015 premium filing procedures to include, among other things, disclosure of such changes to annuity payments.
Large employers that sponsor traditional pension plans are increasingly looking to transfer their plan liabilities to insurers or to convert pension balances into one-time lump sums, according to recent surveys (see November 2013 story).
For example, Motorola Solutions Inc. made headlines recently when it announced a transfer of about $3 billion in U.S. retiree pension liabilities to Prudential Financial Inc. As part of that “derisking” move, Motorola Solutions also said it would offer up to $1 billion in lump-sum payments to many of its other defined benefit plan participants. In similar moves in September, American Axle & Manufacturing Holdings Inc., Magnetek Inc. and Newell Rubbermaid Inc. offered cash lump-sum payouts to departed, but not yet retired, employees, to lighten the companies’ pension obligation load.
PBGC requires annual premiums, either flat-rate or variable, from all Title IV employer DB plan sponsors to cover its support of participants in failed DB plans. (See ¶841 in the Handbook for more information about PBGC premium payments.) Premium payments are filed along with plan funding and actuarial disclosures, and the new requirement about lump-sum payment offers would be included in that process.
PBGC said in the posting that it needs the requested information about annuity conversions and other details filed annually to identify the plans for which premiums are paid, to verify whether the amounts paid are correct, to help PBGC determine the magnitude of its exposure in the event of plan termination, to help track the creation of plans and the transfer of participants and plan assets and liabilities among plans, and to keep PBGC’s insured-plan inventory current.
If a company offloads a portion of its pension obligations, the rising PBGC premiums they pay to PBGC would be decreased. Because PBGC is dependent on these company premiums for its funding, disclosures about recent or planned pension risk transfers would be useful for the agency’s own budgeting process.
The agency’s website provided no further information about the annuity-conversion reporting request at press time.
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