That has some retiree advocates concerned. Among them is Edward Stone, special counsel to the Association of BellTel Retirees, which represents more than 134,000 Verizon Communications retirees. In 2012, Verizon transferred the pensions of 41,000 of its management retirees to Prudential in the form of a group annuity contract.
The result, said Stone, is that “retirees lose all uniform protections intended by Congress under the Employee Retirement Security Act (ERISA). Retirees no longer receive annual statements about their assets because insurers claim that they are heavily regulated by their state regulators,” he added.
“In New Jersey, where Prudential is domiciled, ‘heavy regulation and oversight’ comes from a mere 30 people who are responsible for oversight of every single bank and insurance company licensed in the state,” Stone said.
“Many retirees, lacking other forms of income, are entirely dependent on insurers to manage their retirement assets and this new deregulation removes a crucial layer of accountability,” Stone warned.
“While we may not yet know what happens when an insurer the size of a Prudential or MetLife isn’t policed adequately, we know for sure that the seeds of the next financial meltdown are being sown with deliberate attempts to avoid transparency and accountability at the expense of retirees and their families,” Stone added.
The American Council of Life Insurance disagreed with Stone. The association said in a recent policy paper that the state regulatory system that oversees annuities and the life insurers that issue them “impose a higher level of regulatory and solvency scrutiny than the federal regulations governing pension plans.”
Plan officials responsible for implementing de-risking transactions are governed by ERISA’s fiduciary standards, ACLI said.
“These standards not only require that plan fiduciaries act prudently in carrying out their responsibilities, but that they act solely in the interest of the plan’s participants and beneficiaries. In satisfying these standards, plan fiduciaries must ... take steps calculated to obtain the safest available annuity,” the association said.
It doesn’t make sense for retirees to receive annual statements on their former pension plans once their former employer transfers payment obligations to an insurer’s annuity, ACLI argued.
Retirees who have their pension obligations transferred to an annuity do, however, lose their Pension Benefit Guaranty Corporation (PBGC) protection, but all states have state guaranty funds intended to protect promised benefits if an insurer fails, ACLI said.