A coalition of large corporate retiree associations says that when corporate sponsors “de-risk” pensions plans by annuitizing them, it amounts to a de facto benefit reduction.

“The reality is that retirees terminated from any ongoing defined-benefit plan suffer a number of losses,” William Kadereit, president of the National Retiree Legislative Network, said at a hearing conducted today by the U.S. Labor Department’s ERISA Advisory Council in Washington, D.C.
De-risking, industry lingo for strategies used by corporate sponsors to reduce their pension plan liability, can take various forms, including lump-sum payments and shifting pension obligations to insurance companies in the form of annuities.

Kadereit warned that while ERISA insulates qualified pension benefits from claims of creditors, not all states protect annuity payments from creditors, putting people's pension money at risk.

With de-risking, he added, retirees and other plan participants lose annual disclosure reports and the minimum funding and fiduciary protections required under ERISA.

Pension Benefit Guaranty Corp (PBGC) guarantees—$765,00 for a single life annuitant, without a survivor benefit, at age 65—range from 50 percent to 70 percent more than those of state insurance guaranty funds, which have a lifetime maximum ranging from $100,000 to $500,000, Kadereit added.

His group is urging Congress to require plan sponsors to have back-up insurance either from the PBGS or a highly rated insurance carrier.

AARP Legislative Policy Director David Certner told the council that the AARP wants the Labor Department to replicate ERISA protections for annuities derived from de-risking.

The AARP’s recommendations include requiring insurers to keep annuity assets separate from other lines of business, requiring lump sum offers to be accompanied by disclosures on potential tax consequences and requiring adequate protection of spousal rights.

The annuities were defended at the meeting as exceptionally safe and effective by one of the major players in the business, Prudential Retirement.

While retiree advocates said greater disclosure is needed by companies de-risking, Phil Waldeck, the head of Prudential’s $73 billion pension and structured products business, said plan sponsors making the change take extraordinary steps to ensure retirees and participants have the information they need to make informed choices.