As more companies offload their defined benefit pension obligations to insurance companies in multibillion-dollar transactions, legislators in some states are starting to take notice and to consider laws that are aimed at protecting retirees.
Lawmakers in two states, Connecticut and New York, are considering legislation that would expand disclosures and protections from creditors for plan participants. And legislators in several other states have expressed interest in developing legislation to deal with pension de-risking issues.
“We're looking for champions” to push legislation on pension annuity buyouts in the states, said Edward Stone, of Edward Stone Law in Greenwich, Conn., who serves as legal counsel to retiree groups and who has worked with lawmakers in Connecticut and New York on their legislation.
Stone has also been involved in an effort to develop standards that are informing the nascent legislative movement.
He helped a group of state lawmakers, the Troy, N.Y.-based National Conference of Insurance Legislators, develop a set of best practices on pension de-risking, which the organization adopted in November.
The insurance industry was also heavily involved in the effort, as the American Council of Life Insurers, Prudential Financial Inc.—which has received the lion's share of group annuity transactions—and others provided input. Criticism of the group's earlier proposed model act on de-risking also was taken into consideration.
Scott Kaplan, head of Prudential's pension risk-transfer team in Woodbridge, N.J., told Bloomberg BNA that his company “played a leadership role” in helping to develop the best practices as an industry solution—not just a solution for Prudential. The best practices recommendations are “a positive step forward to make sure retirees have retirement security, and not only to make sure that they have retirement security, but also to address any other areas where they may be worried about their pension.”
Prudential also supported the product of NCOIL's efforts “to address any fears, and to increase retirees’ confidence and security in these annuity solutions,” Kaplan said.
Jack Dolan, vice president of media relations for the ACLI, said in an e-mail, “We support the NCOIL resolution which, among other things, stresses the importance of providing consumers clear information. We oppose efforts in the states that would go beyond the compromise contained in the NCOIL resolution.”
Stone, who serves as legal counsel to the Association of BellTel Retirees Inc. and ProtectSeniors.org, and who had drafted NCOIL's model act, told Bloomberg BNA that reaching consensus on the best practices took some effort, but eventually Prudential “was very supportive of our efforts.”
“There is still some friction” regarding disclosure issues, Stone said, but “we're hopeful that we can find a way to let retirees know they'll be as well off as they were before. The goal is to make sure retirees know their pension retirement savings are safe.”
The issue has gained importance as an increasing number of pension plans have turned to two forms of de-risking in recent years: buying group insurance annuities to transfer pension liabilities and offering retirees and beneficiaries lump-sum benefit options.
Since General Motors Co. announced in 2012 that it was transferring its pension liabilities for 42,000 U.S. salaried retirees and their beneficiaries to Prudential Insurance Co. of America, as well as providing a lump-sum option, dozens more large plan sponsors have followed in GM's wake, affecting hundreds of thousands of retirees and their beneficiaries.
According to the LIMRA Secure Retirement Institute, pension buyout sales more than doubled in 2014, to $8.5 billion in 2014 from $3.8 billion in 2013. There were 277 pension buyout contracts in 2014, up 28 percent from 217 the previous year, the report said.
Excerpted from a story that ran in Pension & Benefits Daily (03/20/2015).
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