The Impact of Deregulation on Pension De-Risking

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.”

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MetLife Settles with NY over Lost Retirees

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,

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Weyerhauser Transfers Obligations for 28,500 Retirees to Athene

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.

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Lockheed Martin – Pension De-Risking

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.

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PBGC Will Take Over Sears Pension Plans

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.

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Weyerhaeuser Plans to De-Risk in 2019

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.

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MetLife Settles with Massachusetts Over Unpaid Pensions

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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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PBGC Premiums Will Increase in 2019

The Pension Benefit Guaranty Corporation (PBGC) will increase it’s fixed rate premium to $80 per plan participant for 2019.  The fixed rate premium was just $35 in 2012.  The PBGC is a federal agency created by ERISA to protect private sector pension plans.  If your pension plan goes belly up, the PBGC wills step in and its insurance program will pay your pension benefits up to certain limits, depending upon your age and when your plan fails or your employer enters bankruptcy.  The PBGC is funded entirely by insurance premiums from the companies its protects, assets from plans for which it serves as trustee, recoveries from former plan sponsors, and its investments.  The PBGC is not funded with tax dollars.

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2018 Pension De-Risking Summary

2018 saw many pension de-risking transfers, and industry experts expect this trend to continue unabated into 2019. In fact, Bristol-Myers Squibb has already announced a $3.8 Billion transfer to Athene Annuity and Life Company for August, 2019.  We will have to wait and see if that pension risk transfers tops the 2019 charts.

Some of the larger pension de-risking transfers of 2018 were:

Ball Corporation of Broomfield, Colorado – $220 Million in pension liabilities transferred, affecting 11,000 retirees.

Federal Express, Memphis, Tennessee – $6 Billion in pension liabilities transferred to Metropolitan Life Insurance Co.

Materion Corp., Mayfield Heights, Ohio – $111 Million in liabilities transferred to Mutual of America Life Insurance Company

International Paper – transferred $1.6 Billion in pension liabilities to Prudential Insurance Company of America

Devon Energy, Oklahoma City, Oklahoma – transferred $190 Million in pension liabilities

Archer Daniels Midland Company, Chicago, Illinois – transferred $500 Million in liabilities to Prudential

AK Steel, West Chester, Ohio – transferred $280 Million to Massachusetts Mutual Insurance Company

Boise Cascade Company, Boise, Idaho – Two separate transactions in 2018, one for $152 Million, and the other for $122 Million both to Prudential

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Bristol-Myers Squibb Transfers $3.8 Billion

In early December, 2018 the pharmaceutical giant, Bristol-Myers Squibb, announced that it was transferring $3.8 Billion of its pension obligations to Athene Annuity and Life Company, offering lump sums to certain plan participants, and terminating its US pension plan. This transfer, with an effective date of August, 2019 affects over 18,000 employees.  State Street Global Advisors acted as the pension plan’s fiduciary consultant. Athene, founded in 2009, is a relatively new entrant in the pension de-risking arena.  According to a press release, Athene closed six pension risk transfer transactions in 2018, totaling more than $1.8 Billion.

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