In its 2018 10-K, Maryland based chemical conglomerate, W.R. Grace & Co. reported that it has purchased a group annuity contract from Prudential Life Insurance Co. of America, transferring $117.4 million in pension liabilities. W.R. Grace recognized a $1.0 million gain on that transaction. Earlier in 2018, W.R. Grace’s U.S. pension plans paid $42.2 million in lump sum distributions to retirees not yet in pay status reducing its pension obligations by $43.5 million and resulted in a $1.3 million gain. W.R. Grace’s defined benefit plan closed to new participants in 2017. The company now sponsors a defined contribution plan for U.S. employees, currently contributing an amount equal to 100% of employee contributions, up to 6% of an individual employee’s salary or wages.
In its recent SEC filing, paint giant Sherwin Williams disclosed that it had distributed lump sums to some of its pension plan participants in late 2018, and intended to continue its pension de-risking in 2019 via more lump-sum payments or the purchase of a group annuity contract. At the end of 2017, Sherwin William’s three defined benefit plans were actually over-funded, with assets of $1.19 billion, with projected benefit obligations of $916.2 million. After additional lump-sum payments in 2019 and the purchase of an annuity contract, Sherwin William’s plans to use the remaining cash to fund future contributions to a defined contribution pension plan that will replace its current defined benefit plans. Unlike a defined benefit plan, a defined contribution plan does not promise or guarantee a specific amount of benefits at retirement. A contribution plan invests either or both of the employer and employee contributions in a retirement account on the employee’s behalf, with the employee to receive the balance upon retirement.
New York Assemblyman Peter Abbate has sponsored 2019 legislation to protect retirees in pension de-risking transfers. Assembly Bill A5818 – “AN ACT to amend the insurance law, in relation to providing protection to certain retirees from pension de-risking transactions; and to amend the civil practice law and rules, in relation to statutorily exempt payments” has been referred to the Insurance Committee. This bill was introduced on February 19, 2019, and is the first step in gaining much needed protections for retirees impacted by pension de-risking transfers.
Pension de-risking through the purchase of a group annuity contract is a concern to retirees because retirees lose all of the uniform protections intended by Congress under ERISA and their rights become subject to non-uniform state laws. Enactment of legislation at the state level is needed to replace these protections. NY’s proposed legislation, A5818, will provide those protections to New York retirees impacted by pension de-risking transfers. This legislation will provide basic financial disclosures, protections of annuity benefits from creditors, and reasonable restrictions on subsequent transfers.
Pension de-risking protections have already been enacted in Connecticut and Virginia. Read more about pension de-risking here and here.
Check out Edward Stone’s letter to the editor, appearing in the January 25, 2019 online edition of Crain’s New York Business, commenting upon the article “Trump deregulation binge puts state agencies on the spot”. Following up on Crain’s assertion that the New Jersey Department of Banking and Insurance is over matched when it comes to overseeing “complex financial behemoths like Prudential” Edward Stone points out that: “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.”
On January 28, 2019, Superintendent of Financial Services for the State of New York, Maria Vullo, announced that the Department of Financial Services (DFS) had settled its dispute with MetLife over the insurers failure to make payments to thousands of retirees owed benefits under pension risk transfer annuity contracts that dated back to 1992. Under the terms of the consent order, MetLife will pay a penalty of $19.75 Million and restitution in the form of retroactive benefits totaling more than $189 Million. MetLife was cited for violations from 1992 – 2017 including: (1) improperly released reserves for 13,712 group annuity certificates; (2) failure to adequately search for group annuity certificate holders; (3) failure to perform a cross-check against the Social Security master death index; (4) failure to take reasonable efforts to confirm the death of an insured; (5) failure to research and timely commence outreach where variations of an insured’s information existed; (6) failure to ensure that disclosure statements were accurate and complaint with law; and (7) failure to present consumers with an accurate comparison of the fees between existing and proposed variable annuity contracts. MetLife has been directed to take corrective measures and to retain a third-party servicer specializing in locating beneficiaries who are due pension benefits and have not been paid. Edward Stone Law reported earlier on MetLife’s settlement with Massachusetts,
On January 23, 2019, Weyerhaeuser announced that it had entered into an agreement with Athene Annuity and Life Company to purchase a group annuity contract that will transfer Weyerhaeuser’s pension benefit obligations for approximately 28,500 Weyerhaeuser retirees to Athene. This pension de-risking transfer will reduce Weyerhaeuser’s pension plan benefit obligations by approximately $1.5 billion. In anticipation of this pension de-risking transfer, Weyerhaeuser contributed an additional $300 Million to its pension plan last year. Click here for our earlier post on Weyerheauser’s pension de-risking plans.
Bethesda, Maryland based Lockheed Martin Co., the Pentagon’s top weapons supplier, disclosed its recent pension de-risking transfers in its 8-K SEC filing on January 29, 2019. In a $1.8 Billion transaction with Prudential Insurance Company, Lockheed transferred pension obligations for approximately 32,000 U.S. retirees and beneficiaries. In a separate transfer, known as an annuity “buy-in” the Lockheed pension plan has purchased an annuity contract to cover the costs of the pension payments owed to approximately 9,000 retirees.
In a news release on January 18, 2019, the Pension Benefit Guaranty Corporation (PBGC) announced that it would take responsibility for Sears’ pension plans, which cover more than 90,000 people. A hedge fund run by Eddie Lampert, the former CEO of Sears won a bankruptcy auction with a $5.2 billion proposal to keep the company in business and preserve 45,000 jobs. The purchase agreement did not include the two pension plans. Lampert’s offer must still be approved by the U.S. Bankruptcy Court for the Southern District of New York and is being opposed by a committee of Sears’ creditors. It is estimated that Sears’ two pension plans are underfunded by about $1.4 billion. As a creditor in the Sears bankruptcy, the agency could attempt to recover some of that money through the bankruptcy.
Late last year Seattle based Weyerhaeuser Co. contributed an additional $300 Million to its pension plan and announced its pension de-risking plans for 2019, which include the purchase of a group annuity contract. The Weyerhaeuser pension plan has assets of $5.514 billion in the U.S. and Canada, and over 70,000 participants. According to the company’s press release, the combination of lump sum payments and the group annuity contract purchase will reduce the U.S. pension liabilities by approximately 30%, and reduce the number of plan participants by 50%. The press release did not identify the insurance company that will provide the group annuity contract.
In late 2017, MetLife announced that it had lost track of some retirees. MetLife had assumed the responsibility of paying these retirees in a pension risk transfers done years ago, and disclosed that it followed a policy of trying to reach beneficiaries just twice. Once when they approached age 65, and again 5 1/2 years later when federal law required them to begin taking benefits. MetLife was charged with fraud in June 2018 by the Commonwealth of Massachusetts. The lawsuit was settled in late December with MetLife paying a $1 Million fine to Massachusetts. MetLife is making payment to the formerly “lost” annuitants with interest.
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© Edward S. Stone 2014-2020.
Photos courtesy of David Lasnick.