Pension risk-transfer deals have grown in popularity in the U.S. as employers grapple with the rising costs of retirement plans, especially in an era of low interest rates. Prudential Financial Inc. has taken on pension obligations of companies including General Motors Co. and Verizon Communications Inc.
The troubles at MetLife underscore one of the challenges inherent in a business where employers have unloaded more than $86 billion in pension obligations over the last five years. It can be tough enough for employers to keep track of beneficiaries over years or decades as they change jobs and move. It’s all the more fraught when obligations are shifted to insurers -- often requiring employers to clean up data files or convert them to an electronic format, according to a 2016 report from Prudential.
At MetLife, the challenges were compounded by the fact that some of its risk-transfer business was written as much as 25 years ago and involved many participants who were still years from retiring and collecting pensions. With no hard-and-fast regulations governing how insurers track clients, MetLife followed a policy of attempting to reach beneficiaries twice -- once when they approached 65 and again about 5 1/2 years later, when they were required under federal law to begin drawing benefits.
If both attempts failed, MetLife would assume a customer wouldn’t respond. The company then released the funds it had held to pay the pension from its reserves.
MetLife would welcome additional guidance from regulators related to the risk-transfer market, company spokesman Randy Clerihue said.
Still Acquiring
On Wednesday, MetLife said it’s shifted focus to buying pension plans from employers in which beneficiaries are already retired. The insurer acquired a record $3.3 billion of pension obligations last year and expects 2018 to be another active year, CFO Hele said.
MetLife said it found problems with its past practices itself, citing a “lack of timely escalation” of the issue. Last October, the discovery was brought to the attention of Kandarian and Michel Khalaf, who took over the U.S. business three months earlier, the CEO said during Wednesday’s call.
“Some uncertainty remains around the issue, given ongoing investigations by the NY state regulator and the SEC,” Mark Dwelle, an analyst at RBC Capital Markets, told clients in a note on Wednesday.
The troubles have prompted analysts to question other companies in the risk-transfer market. Prudential said earlier this month that it’s comfortable with its practices and the money backing the contracts.
Past Troubles
This isn’t the first time insurers have been admonished for not doing enough to reach clients. In recent years, MetLife and others came under scrutiny from regulators who accused them of holding on to benefits people hadn’t claimed, rather than turning them over to states or policyholders. Many insurers now use a government database known as the “Death Master File” to double-check whether clients are still alive.