In February, ProtectSeniors.Org held an important meeting in Washington, D.C. with the top leaders of the federal Pension Benefit Guaranty Corporation (PBGC), offering another example of our national leadership in championing retiree concerns related to de-risking. The recent meeting allowed ProtectSeniors.Org to provide PBGC leaders greater insights from a retiree perspective.
It is rare to get an opportunity to meet privately with such key federal regulators, but dialogue between ProtectSeniors.Org and the top PBGC leadership have carried on over the last two years.
Edward Stone, Special Counsel to ProtectSeniors.Org presented PBGC Director W. Thomas Reeder and his executive staff with a detailed and convincing case for why the practice of de-risking – converting ERISA guaranteed pensions into insurance annuities – threatens retiree income security. Jack Cohen, Chairman of the Association of BellTel Retirees, also gave a first-hand account from a Verizon retiree whose pension has recently been de-risked.
When a corporation has a pension plan, it pays an annual fee to the PBGC based on the number of retirees it covers. Those payments are then used to federally insure future pension payments to retirees, should the corporation face financial hardship, a process created by the ERISA law. Currently, the fee for corporations is $64 annually per pensioner and it is slated to increase to $80, by 2019.
When retirees are de-risked they lose ERISA law protections. Under ERISA, retirees’ pensions are guaranteed by the PBGC. But when de-risking converts pensions into a group insurance annuity, weaker and varied state insurance regulations apply instead.
It means insurers have zero responsibility or obligation to inform retired group annuity holders if their pension assets are safely invested or held in junk bonds. Currently a solid insurance company can sell off their pension annuities to any fly-by-night, boiler room penny stock investment manager. There is no protocol or law for sufficient, proper oversight to protect the best interest of retirees whose assets were transferred.
And if a retiree has their home foreclosed, goes bankrupt or is sued, while ERISA-protected pensions were safe, the new replacement annuity payment can be seized, except in Connecticut or Florida.
The PBGC identified over 1,000,000 U.S. “risk transfer events” between 2009- 2013, which include pension buyouts or de-risked pensions, threatening the very funding source it relies on. In 2013, when Verizon de-risked 41,000 retirees, the transfer was estimated to save the company $1.7 million in PBGC fees, based upon a previous rate of $42 per retiree.