WHAT IS GOING ON WITH RETIREES’ PENSIONS?
All across America, companies with “legacy” defined benefit pension plans are looking to rid themselves of their pension liabilities. To do this, many defined benefit plan sponsors transfer their pension liabilities to insurance companies in pension de-risking transactions.
This practice, known as “pension risk transfer” or “pension de-risking,” has impacted hundreds of thousands of Retirees. The numbers are staggering. Pension de-risking transfers in 2021 exceeded $34 billion and in 2022 exceeded $48 Billion. Over $300 Billion in pension assets has been transferred to insurance companies since 2012. Since Verizon and General Motors kicked off this trend in 2012 hundreds of companies have transferred their pension liabilities to an insurance company.
WHY ARE COMPANIES DOING THIS?
Pensions are costly for employers and most companies have scaled back or eliminated their pension plans in recent years. In 1998, 59% of the Fortune 500 companies offered a defined benefit plan to new hires. Fast forward twenty years, and just 14% of the Fortune 500 companies offered a defined benefit plan to new hires in 2019. The landscape for retirees continues to change dramatically.
Pension plans are a huge expense for corporate America, and they have grown even more costly in recent years. Under the Pension Protection Act of 2006, a defined benefit plan must pay insurance premiums to the Pension Benefit Guaranty Corporation (PBGC) each year. The PBGC steps in to cover pension payments to retirees when a pension plan fails. For 2024, the flat rate premium is $101.00 per plan participant but if a corporation’s pension plan is underfunded, the plan may also be required to pay an additional variable rate premium.
WHY SHOULD I WORRY?
Quite simply, when a company sells its pension liabilities to an insurance company, retirees lose. They are deprived of all the uniform protections provided under the Employee Retirement Income Security Act of 1974 (ERISA) and coverage by the Pension Benefit Guaranty Corporation (PBGC). The protections lost include:
- ERISA’s fiduciary duty standards
- Annual financial disclosures
- Minimum funding thresholds
- Uniform protection from creditors and bankruptcy trustees
- Access to the federal courts
Retirees routinely accepted lower salaries in exchange for the promise of pension and healthcare benefits at retirement. Unfortunately, the same employers who made those promises also reserved their right to make changes to those retirement benefits and many of them have done so, eliminating health care benefits, life insurance benefits, or requiring significant monetary contributions for retirees to continue those benefits.
WHAT IS RETIREES FOR JUSTICE DOING TO HELP?
Retirees for Justice advocates at the state and federal level for laws protecting retirees impacted by pension de-risking. Edward Stone, Executive Director of Retirees for Justice, was instrumental in securing the passage of laws in Connecticut in 2015 and in Virginia in 2018. Legislation is now pending in New York. Plans are underway to propose additional legislation in California, Delaware, Maryland, New Jersey, Massachusetts, Michigan, and Rhode Island.
You can help by joining Retirees for Justice! Membership is free – click here to register. You will receive a monthly newsletter from us via email updating you on our progress and providing other information of interest to retirees.