Senior financial reporter for the NBC News Investigative Unit, Gretchen Morgenson delved into the issue of pension de-risking in an exposé published on June 14, 2020. Morgenson interviewed Karen Friedman of the Pension Rights Center, and Thomas Gober, a certified fraud examiner who has worked as a consultant to the U.S. Department of Justice, and Joseph Belth, professor emeritus of insurance at Indiana University, and author of The Insurance Forum. Focusing on Athene Annuity & Life, Morgenson points out that “Athene has acquired $12 billion in corporate pension obligations recently, including those of Bristol-Myers Squibb, Dana Corp. and Lockheed Martin Corp.” Some 178,000 people now rely on Athene for their pension benefits. In April 2020, Athene was fined by the State of New York for failing to register before engaging in its pension de-risking business in New York.
On February 1, 2021 American International Group, Inc. agreed to pay a $12 Million fine to the State of New York to settle charges by the New York State Department of Financial Services (NYDFS) that it conducted life insurance business in New York without a license. Between 2014 and 2019, AIG entered into four pension risk transfer (a/k/a pension de-risking) transactions without being licensed in New York. As part of the settlement, AIG will transfer those transactions to its New York based subsidiary. NYDFS’s superintendent, Linda Lacewell is quoted in Business Insurance as saying: “A DFS license offers consumers peace of mind through the requirement of compliance with New York laws and regulations, helping to safeguard assets. The department will continue to vigorously enforce the law to protect retirement assets of New Yorkers.”
Midland, Michigan based Dow Inc. transferred $700 million in pension liabilities to Metropolitan Tower Life Insurance Company, a subsidiary of MetLife Inc. in the 4th quarter of 2020. The transfer affected retirees in the Dow Pension Plan who receive $950 or less in monthly benefits, and retirees in the Union Carbide Pension Plan receiving less than $420 per month. Over 12,000 retirees were impacted by this transfer.
Weyerhaeuser transferred $765 million of its pension liabilities in December, 2020. Weyerhaeuser purchased a group annuity contract from Metropolitan Tower Life Insurance Company, a subsidiary of MetLife. This pension de-risking transaction affects 5,200 Weyerhaeuser retirees.
The Kemper Corporation, an insurance holding company based in Chicago, Illinois completed a transfer of $205 million in pension liabilities to Banner Life Insurance Company. Kemper’s pension plan was closed to new hires on January 1, 2006, and benefit accruals have been frozen since June 30, 2016. Kemper also offered to make lump-sum payments to certain inactive, vested plan participants who were not yet in pay status. $117 million in lump-sum payments were distributed.
General Electric (GE) recently announced that it had transferred $1.7 Billion of its pension liabilities to two insurance companies owned by Athene Holding Ltd. The two insurance companies are Athene Annuity and Life company and Athene Annuity & Life Assurance Company of New York. The pension risk transfer, or pension de-risking transfer affects approximately 70,000 GE retirees and beneficiaries whose pension benefits were less than $360 per month. This pension de-risking transfer follows GE’s decision to pre-fund $2.5 Billion of its GE Pension Plan funding requirements for 2021, 2022, and 2023.
Athene Holding Ltd. paid a $45 Million fine to the State of New York for violations related to its pension de-risking business operated by its subsidiary Athene Annuity & Life Corporation. The New York State Department of Financial Services (DFS) discovered that Athene both solicited and did insurance business in New York without a license. According to the DFS, Athene entered into fourteen pension de-risking transactions involving thousands of New York residents, including two transactions involving New York based defined benefit plan sponsors. As part of the settlement with the State of New York, Athene will transfer certain transactions to its New York licensed subsidiary, Athene Annuity & Life Insurance Company of New York.
Bethesda, Maryland based Lockheed Martin Corp. transferred $1.9 Billion in pension obligations for 20,000 US retirees to a subsidiary of MetLife, Metropolitan Tower Life Insurance Co. Lockheed Martin has done at least two previous pension risk transfers to insurance companies. In January 2019, Lockheed Martin transferred $1.8 Billion in pension obligations to Prudential and also transferred $800 million to Athene Annuity & Life Co. in an annuity “buy-in” impacting approximately 9,000 Lockheed retirees. For more on “buy-in” transfers, click here to see a previous post by Edward Stone Law. Lockheed Martin contributed $5 Billion to its pension plan during 2018, and $1 Billion in 2019.
On December 18, 2019, Voya Financial, Inc. and Resolution Life Group Holdings Ltd. announced the terms of an agreement where Voya sold substantially all of its in-force life business, including its pension risk transfer liabilities for $1.250 Billion, which included cash of $902 Million, and retained surplus notes of $123 Million. Resolution Life will assume responsibility for the administration of all acquired business. This deal is expected to close in late 2020.
What is the difference between a pension risk transfer via an annuity “buy-in” or “buy-out?”
With an annuity “buy-in” a plan sponsor purchases one or more group annuity contracts to cover pension obligations with the plan sponsor remaining responsible for making payment to the plan participants.
With an annuity “buy-out” the defined benefit plan sponsor transfers all of its pension liabilities to an insurance company by purchasing a group annuity contract and terminates its defined benefit plan. A variation on the annuity “buy-out” is the “lift-out” where the plan sponsor purchases an annuity contract to cover the benefits of certain retirees, but other retirees remain covered by the pension plan and the plan is not terminated.
In August 2019, the LIMRA Secure Retirement Institute reported that “buy-ins” totaled more than $880 million in the second quarter of 2019. “Buy-outs” for the same period surpassed $4.7 billion.