Burn pensions!
Before its bankruptcy in 1991, Executive Life Insurance Company accepted transfer agreements from firms to pay its retirees’ pensions in lieu of the corporate’s defined profit pension plan. Employers saved money on the transfer because Executive Life offered high rates of interest—which, it later turned out, were backed by junk bonds—and since their retirees lost the protection of the Pension Benefit Guaranty Corporation (PBGC) when the businesses stopped paying PBGC -Premiums set. Retiree from RJ Reynolds, Pacific Lumber suffered significant cuts in pensions after the worth of Executive Life assets collapsed and Executive Life collapsed.
Twenty years after Executive Life defaulted on its staff’ pensions, GM and Verizon helped create one wider trend in corporate America, where over $300 billion in retiree assets have since shifted to pension providers and personal equity investors.
History repeats itself: Companies are canceling their pension plans and replacing them with annuities – long-term contracts with lifetime payments. Recent stock market gains and better rates of interest are increasing pension wealth, making transfer now profitable. The Funding status Many of the United States’ defined profit corporate plans have surpluses, with quite a lot of pension auditors finding that many corporate plans are greater than 100% funded. IBMIBM has decided to make use of its plan surplus to reinstate its defined profit plan; many more are switching off their risk.
On March 6, Verizon announced it was complete a $5.9 billion transfer of 56,000 group insurance annuities with Prudential Insurance Company and RGA. Last yr, ATT de-risked its pension liabilities in an $8 billion transaction involving 96,000 retirees and beneficiaries.
Workers and pensioners are fighting back
Both firms assured retirees that their pensions wouldn’t be jeopardized by the change. The retirees in each firms are usually not and won’t be reassured fight back.
Verizon retirees – BellTel retirees – are protest their pension contracts be sold to Prudential Financial Inc. and Reinsurance Group of America Inc. (RGA). Prudential Financial Inc. relies heavily on insurance regulations in Arizona, which risk-taking critic lawyer Edward Stone described as a state with few regulations that does not require reinsurance firms to submit publicly available financial reports in accordance with statutory accounting principles.
The Communications Workers of America (CWA), the union that represents the AT&T and Verizon Workforce is supporting a lawsuit against AT&T filed last month by affected retirees alleging that AT&T violated ERISA’s fiduciary requirements to act in the very best interests of plan participants by choosing the safest retirement provider available.
AT&T’s chosen insurance company, Athene Annuity and Life, is affiliated with Apollo Global Management, the publicly traded private equity firm co-founded by billionaire Leon Black (who was embroiled within the Jeffery Epstein scandal when Apollo Global Management announced that Black Epstein paid $158). From 2012 to 2017, he was paid thousands and thousands of dollars for financial advice, although Black knew that Epstein pleaded guilty to solicitation in 2008 Sex for money from an underage girl from Florida.)
NBC journalist Gretchen Morgenstern In 2020, Athene warned in regards to the dangerous portfolio and Bermuda-based assets given its responsibility for the pension advantages of Bristol-Myers Squibb, Dana Corp. and Lockheed Martin Corp. Last yr the Financial Times covered others’ concerns in regards to the dangerous portfolios of “shadow” insurance firms.
The ATT lawsuit also alleges that State Street Bank, which advised ATT, could have turned a blind eye to the independent auditors who needed to certify that the pension assets were going to a secure institution. AT&T reported a $363 million increase in earnings consequently of the de-risking transaction, and the category motion lawsuit estimates that AT&T will realize a further $90 million to $180 million in administrative cost savings and $182 million in lost PBGC premiums over the lifetime of those affected. Dollars can be received by beneficiaries.
In addition to the chance to employees and pensioners, risk reduction also causes other losses when a DB pension is terminated. After the transfer, there isn’t any opportunity for workers and retirees to receive pension improvements equivalent to a value of living increase.
In the past, when the corporate made a surprise profit in its DB plans that benefited employees for the reason that funds were only earmarked for worker advantages, period. By reducing risk, the corporate can take all of the profits.
The risks of de-risking
The total pension risk transfer (PRT) premium within the US was $12.7 billion within the fourth quarter of 2023, 53% higher than within the fourth quarter of 2022. In 2023, 850 pension risk transfer contracts were concluded: 25% greater than in 2022.
DB plans have many benefits over 401(k) plans – a lifetime annuity stands out. With risk reduction, this advantage may very well be gone.
For its part, the American Council of Life Insurers (ACLI) defends the strength of the insurance firms that support the transfer contracts. Mariana Gomez-Vock, senior vp of policy and legal at ACLI, said the Bermuda Monetary Authority has made significant regulatory changes lately to reassure regulators world wide that Bermuda has rigorous regulatory reporting Remy Samuels at plan sponsor.
I taught economics on the University of Notre Dame for 25 years; This got here 20 years after the South Bend, Indiana-based Studebaker company terminated its worker pension plan in 1963, leaving greater than 4,000 auto staff without nearly all of their promised pension advantages without recourse. As a really young assistant professor, I met families who were still affected by sudden lack of income – losing their home to foreclosure and the stress resulting in an early death. The PBGC was introduced specifically citing the Studebaker losses. Reducing pension risk could repeat this narrative.
