Lawmakers in Connecticut have passed de-risking legislation that has been sent on to Governor Dannel Malloy for signature. Stone is quoted as saying “This bill is an important step in the right direction for retirees.” See “De-Risking Bill Sent to Connecticut Governor; N.Y. Measure Stalled in Insurance Committee”, by Sean Forbes. Reproduced with permission from BNA Pension & Benefits Reporter, 42 BPR 1008 (June 9, 2015). Copyright 2015 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com.
On Wednesday, June 3rd, 2015 the Connecticut Senate unanimously voted to pass H.B. 6772, providing creditor protections to retirees in pension de-risking transactions. The bill will now be presented to Governor Malloy for signature. ProtectSeniors.org, a non-profit group advocating for retirees in Connecticut and across the nation led the charge in passing this legislation. As special counsel to ProtectSeniors.org, Edward Stone Law worked with this retiree group in advocating for the passage of this important legislation.
Edward Stone testified before the U.S. Department of Labor’s Advisory Council on Employee Welfare and Pension Benefit Plans (ERISA Advisory Council) on May 28, 2015. Stone testified on the need for disclosures to retirees both pre and post pension risk transfers. Recommended disclosures prior to pension risk transfer included:
- A detailed disclosure statement that contains information regarding the loss of federal ERISA protections, including Pension Benefit Guaranty Corporation (“PBGC”) protection and the applicable state laws that will govern their future annuity payments;
- The amount, scope and conditions precedent for state guaranty association coverage in the event of an insurance company insolvency;
- The extent to which annuity payments become subject to creditor claims or avoidance actions by bankruptcy trustees;
- Disclosure related to any changes that might result in the tax treatment of retiree benefits under an annuity contract;
- Lump sum options and conditions, if any;
- Detailed information on the group annuity contract structure, including a schedule of all costs and expenses paid in connection with the transaction;
- A copy of any fairness opinions or solvency analysis done in connection with the choice of annuity or other benefit provider.
Stone’s recommendation on post transfer disclosures to retirees included requiring all annuity providers, or subsequent benefit providers to provide impacted retirees with at least the following mandatory annual disclosures:
- Funding levels of all assets relative to expected liabilities under the assumed pension benefit schedules;
- Investment performance summary by asset class;
- Investment performance detail by asset class;
- Expenses associated with any group annuity contract; and
- Material changes in actuarial assumptions, if any.
These issues keep coming up again, and again. Are annuities safe? Should you lock up all your money in one single annuity? As Dennis Beaver, columnist for the Hanford Sentinel, and a Bakersfield, California attorney told his readers in a recent column “determining if an annuity is right for you requires a careful financial analysis conducted by a fee only financial planner who acts as your fiduciary….”. Edward Stone is quoted extensively in Beaver’s recent article, offering up the Executive Life Insurance Company of New York liquidation as an example of why you can’t count on guaranty associations to pick up the pieces if your insurance company fails. “While there are State Guarantee Associations which offer some protection. Coverage amounts vary from state to state and range from $100,000 to $500,000 per individual per lifetime. This means that if the doctor put his $800,000 IRA into an annuity, and that company bit the dust, he could face significant disruptions and reductions in his benefit payments.”
It just can’t hurt to say it again. No company is too big to fail, and contrary to the assertions of some sales people out there, nothing is risk free and annuities are no exception.
Defined benefit plan sponsors have been quietly working to reduce corporate liabilities by moving retirees out of defined benefit plans and into group annuity contracts. This practice, known to retirees as “pension stripping” takes away the uniform protections intended by Congress under the Employee Retirement Income Security Act (ERISA) and dumps the retirees into the state insurance systems. Ironically, healthy defined benefit plans are those most likely to be subjected to pension stripping. Purchasing a group annuity comes at a significant cost to the plan sponsor but has the benefit of permanently removing the liability from the corporation’s books. In the past few years the industry has seen pension de-risking transfers by Verizon and General Motors that affected over 150,000 retirees. The Verizon transaction was unique in that it did not involve a termination of the defined benefit plan – 41,000 management employees were selectively removed from the defined benefit plan and placed into a group annuity contract with Prudential.
Unions approaching the collective bargaining table should keep the many issues surrounding pension de-risking in mind. De-risking transfers where defined benefits are replaced with a group annuity contract may create new risks for retirees that need to be addressed at the bargaining table. A group annuity contract is governed by state law and all of the protections offered under ERISA including financial disclosures, fiduciary standards, uniform protection from creditors and bankruptcy trustees and uniform coverage offered by the federal Pension Benefit Guaranty Corporation (PBGC) no longer exist post transfer.
Legislation is pending in New York that would help replace protections to retirees who are negatively impacted by pension stripping transactions and is expected to be introduced during the next legislative session in Connecticut and a number of other states. New York’s Senate Bill is S 6150 and was sponsored by Senator Tony Avella of Queens. The bill is currently before the Insurance Committee. A companion bill was introduced in the New York Assembly by Assemblyman Peter Abbate of Brooklyn. Thus far, the proposed legislation in New York and Connecticut which would bring more uniformity, transparency and accountability into this murky arena have been met with significant opposition from the life insurance industry.
As Special Counsel to ProtectSeniors.org, Edward Stone is assisting the organization in their grass roots campaign advocating for the enactment of state legislation to protect retirees who have been moved out of their ERISA protected defined benefit plans and into group annuity groups.
Edward Stone Law can assist your organization in understanding the risks and benefits involved in pension de-risking transfers. For more information, email us at email@example.com or call (203) 504-8425.
ProtectSeniors.Org is leading a grass roots campaign advocating for the enactment of state legislation to protect retirees who have been moved out of their ERISA protected defined benefit pension plans and into group annuity contracts. As Special Counsel to ProtectSeniors.Org, Edward Stone Law has assisted the organization in their efforts to educate their membership on this important issue. Retirees looking to actively participate in the ProtectSeniors.Org campaign can find more information at their website at www.protectseniors.org.
On behalf of ProtectSeniors.org, a retiree advocacy group, Edward Stone debated the issue of pension de-risking at the Spring 2014 National Conference of Insurance Legislators (NCOIL) meeting in Savannah, Georgia on March 9th with Prudential Insurance’s pension expert, Dylan Tyson. Moderated by Rep. George Keiser (ND), former NCOIL President, the debate addressed questions such as what is pension de-risking; what affect does it have on retirees; and how do state and federal protections measure up? For details on the debate, see the April, 2014 issue of the Seniors Advocate, a newsletter published by ProtectSeniors.org.
Edward Stone will participate in a point-counterpoint debate on pension de-risking at the NCOIL (National Conference of Insurance Legislators) spring meeting held in Savannah, Georgia March 7-9, 2014. The proposed Pension De-Risking Model Act, sponsored by Rep. George Keiser (ND) would establish protections at the state level for retirees whose pension benefits were transferred from an ERISA protected plan to a substitute pension plan, such as a group annuity contract, provided by an insurance company licensed and regulated under state law. The proposed Pension De-Risking Model Act requires mandatory disclosures, equal protection from creditors, an opt-out provision, a supplemental guaranty or reinsurance and approval for subsequent transfers.
As more companies seek to reduce their pension obligations by transferring their obligations to insurance companies via annuity buy-outs, regulation of these risk transfers, including disclosures and protections for retirees will be paramount. Retirees often refer to annuity buy-outs as “pension stripping” transactions because the offloading of pension obligations to an insurance company or other annuity provider causes retirees to lose all of the comprehensive and uniform protections intended by Congress under ERISA, including the financial safety net offered by the PBGC.
The Pension De-Risking Model Act, sponsored by Rep. George Keiser (ND), was presented for the first time at NCOIL’s Annual Meeting in November of 2013. The Pension De-Risking Model Act will be more fully explored at NCOIL’s Spring Meeting scheduled for March 6-9, 2014 in Savannah. The Pension De-Risking Model Act provides for (1) mandatory disclosures to retirees whose benefits are transferred; (2) creditor protections for retirees; (3) opt-out options for retirees; and (4) supplemental protections in the form of third-party guarantees or reinsurance.
Edward Stone presented information on the importance of protecting retirees in pension de-risking transactions at the November NCOIL meeting and can provide assistance to those concerned about the impact of pension de-risking and pension stripping transfers on retirees.
In this radio interview on Long Island’s original labor radio show, Labor Lines, Vic Fusco discusses concerns over pension de-risking, or pension stripping as retirees refer to it, with New York State Senator Tony Avella and Eddie Stone. Pension stripping is the latest tool used by corporations to remove pension liabilities from their balance sheet. The corporation purchases an annuity contract from an insurance company to replace a retiree’s pension. This has the result of robbing retirees of their protections under ERISA and the safety net offered by the Pension Benefit Guaranty Corporation. Listen to the radio show here.