Pension De-Risking: An Exploratory Case Study to Understand the Benefits, Gaps, Governance and Controversies Surrounding Group Annuity Contracts

摘要

This case study examines the termination of defined benefit pension plans, provided by private industry, by transferring the plan assets and liabilities to group annuity contracts provided by life insurance companies. The study looks at the regulation and protections that are transferred with the pension obligations from federal government control to individual state control. The Employee Retirement Income Security Act (ERISA) created the Pension Benefit Guaranty Corporation (PBGC) as a backstop to bail out failed private industry pension plans. ERISA also mandates many pension plan requirements, including notifications of its plan's funding status. When pensions are transferred to insurance annuity contracts, the ERISA rules no longer apply since the insurance industry is regulated by individual state governments and not the Federal government. Individual states provide different guaranty limits and annuitants are subject to the limit amount set by their state of domicile. With a rising number of defined benefit plan transfers, tens of billions of dollars in plan assets and liabilities are absorbed by the insurance industry. This shift of obligation from private industry to the insurance industry gives rise to concerns for future risk. Retirees are living longer causing pension and annuity payments to extend beyond initial estimates. Industry experts were asked to discuss current regulatory requirements that safeguard group annuity contracts, expectations of how a continued trend would affect existing regulatory effectiveness and the extent that national standards are needed to regulate pension annuities across the country. The study concludes with several recommendations for increasing communications and transparency, by providing additional notifications, ratings, education and standardization. This study will contribute to the understanding of the life insurance industry regulation and safeguards available to annuitants and beneficiaries. It will also provide guidance for improving future pension transfers by private corporations.