PPG Industries, a Fortune 200 global manufacturer of paints, coatings and optical products has entered into agreements with Metropolitan Life Insurance Company and Massachusetts Mutual Life Insurance Company to provide annuity benefits to 13,400 retirees removed from PPG’s defined benefit pension plans. In what appear to be annuity “lift-out’s” PPG has purchased group annuity contracts from MetLife and MassMutual to cover pension obligations of approximately $1.6 billion. These pension de-risking transfers involve both salaried and non-union hourly employees. Annuity “lift-out’s” occur when a defined benefit plan sponsor amends its defined benefit plan (a “settlor” or administrative decision, not a fiduciary decision), does not terminate the defined benefit plan, but rather moves selected employees or retirees out of the defined benefit plan. De-risked plan participants become “certificate holders” under a group annuity contract they do not own. These retirees lose all of the uniform benefits intended by Congress under ERISA and become subject to non-uniform state laws. We expect to see many similar pension de-risking transactions in 2016. One of our clients, ProtectSeniors.org is actively working to protect retirees’ rights in pension de-risking transactions. For more information, please contact us at (203) 504-8425 or firstname.lastname@example.org.
In March, 2016 the Florida legislature passed a bill revising the Florida Structured Settlement Protection Act § 626.99296 et seq., adding new requirements designed to protect individuals selling their structured settlement payments in the secondary market. The revised Act requires that (1) transfer petitions be filed in the county where the payee resides; (2) all payees attend the hearing on the transfer petition (unless the court determines that good cause exists to excuse the payee from attending); (3) the transfer petition include a summary of all transfers by the payee to the transferee (or an affiliate of the transferee ) filed within the four years preceding the date of the transfer agreement; (4) the transfer petition include a summary of all transfers by the payee to any person or entity other than the current transferee within the three years preceding the date of the transfer agreement, if actually known to the transferee or disclosed by the payee; (5) the transfer petition include a summary of any proposed transfers by the payee to the transferee that were denied within the two years preceding the date of the transfer agreement; and (6) the transfer petition include a summary of any other proposed transfers that were denied, if known by the transferee or disclosed by the payee. These revisions are definitely steps in the right direction and go a long way towards supplying a Florida Circuit Court with information necessary to make a determination that a transfer is in the payee’s “best interest.”
However, the revised statute allows the court to hear an application for a transfer even if the settlement agreement prohibits the transfer of payment rights. This means that no matter how hard a personal injury lawyer may work to protect his/her client from the secondary market, the carefully crafted structured settlement designed to protect an injury victim for an entire lifetime can be undone with the stroke of a pen. Without a doubt, this leaves vulnerable settlement victims at the mercy of unscrupulous factoring companies and their high pressure sales tactics.
These revisions to the Florida Structured Settlement Protection Act § 626.99296 et seq., are effective as of July 1, 2016.
On Thursday, March 3, 2016 the Insurance and Real Estate Committee of the Connecticut General Assembly will hold a public hearing on proposed legislation regarding protections for retirees in pension derisking transfers. The hearing will be held at 1:00 p.m. in the Legislative Office Building at 300 Capitol Avenue, Hartford, CT 06106. The full text of the proposed bill, Raised H.B. No. 5445 can be found here. This proposed bill provides much needed disclosures to employees and retirees and limits subsequent transfers of such annuity contracts to highly rated insurance providers.
ProtectSeniors.org has done it again! Raised Bill No. 5455 entitled “An Act Concerning the Purchase of An Annuity to Fund Pension Benefits” has been introduced in the Connecticut legislature. The proposed legislation requires disclosures to retirees impacted by pension derisking transfers and limits subsequent transfers of the annuity contract to “an entity that maintains a rating equivalent to an A or better from two or more nationally recognized rating agencies.” This proposed legislation will enhance the ground-breaking legislation passed by Connecticut last year under Public Act 15-167 which went into effect on October 1, 2015, providing creditor protections to retirees in pension derisking transfers.
New Hampshire has increased guaranty association coverage for annuity contracts from $100,000 to $250,000. While this is still $250,000 less than the coverage offered by New York, Connecticut, New Jersey and Washington, it puts New Hampshire in line with the coverage offered by thirty-seven other states.
This increase in coverage is very important to retirees in pension de-risking transactions. Typically, in the event of an insurance company or annuity provider insolvency, a retiree would be protected by the laws of the state he/she resides in at the time the insurance company is declared to be insolvent or impaired. Retirees may unwittingly divest themselves of guaranty association coverage by moving after the transfer of their pension obligations. A retiree living in New York with $500,000 of potential coverage would find himself or herself with just $250,000 of coverage after relocating to New Hampshire.
The Maryland Attorney General, Brian Frosh, has asked two attorneys involved in the structured settlement factoring industry, Anuj Sud and Charles Smith, to divulge records relating to their participation with Access Funding’s acquisition of over $28,000,000 of future payments from “overwhelmingly poor” Baltimore residents who were “cognitively impaired as a result of lead poisoning. Unlike many other structured settlement protection acts, Maryland’s Structured Settlement Protection Act requires sellers to obtain professional advice in connection with a sale of their periodic payments. Terrence McCoy of The Washington Post reported that Smith acted as the “independent professional adviser” in each of Access Funding’s transfer petitions filed between June 2013 and June 2015.
An excellent op-ed was published by Fort Worth’s Star-Telegram in late October, written by C. William Jones, the Chairman of ProtectSeniors.org. The piece focused on the pension de-risking crisis facing today’s retirees. Plano, Texas based J.C. Penney was the latest company to join the de-risking bandwagon, offering both lump-sum buyouts and transferring it pension obligations to 43,000 retirees buy purchasing a group annuity contract.
Edward Stone’s guest column – reprinted below – appeared in the Sunday, October 4, 2015 edition of Cleveland’s “The Plain Dealer.”
“Euclid-based Lincoln Electric Co. has become the latest company to join the pension de-risking bandwagon. By offloading its retirees’ pension obligations through the purchase of a group annuity contract from The Principal Financial Group, as of Nov, 1, 2015, Lincoln Electric will have no further obligations to 1,900 former employees.
Once Lincoln Electric chose to purchase a group annuity contract and transfer its pension obligations, its retirees lost all the uniform federal law protections intended by Congress under the Employee Retirement Income Security Act (ERISA). These protections include: ready access to the federal court system; uniform protection from creditors; and mandatory disclosures. Plus, all defined benefit plans that fall under ERISA are backstopped by the federal Pension Benefit Guaranty Corp. (PBGC), which provides annual payments to pensioners that increase based on age.
Lincoln Electric retirees are not the only retirees adrift in the pension de-risking boat. Verizon, General Motors, and Kimberly-Clark are among others in the new fraternity of companies who abandoned their loyal retirees so they could reduce their corporate exposure to volatility.
Why should retirees worry about pension de-risking?
First, it is unclear that the insurance industry has the long-term financial capacity to meet these new obligations to so many retirees. As the 2008 fiscal crisis demonstrated, no company is “too big to fail.” Certainly not Bear Stearns, Lehman Brothers or Merrill Lynch. Earlier this summer, the International Monetary Fund and the Organization for Economic Cooperation and Development both warned that pension de-risking and other pension trends might threaten the stability of the U.S. financial system.
While it’s hard to get accurate data about the breadth, scope and concentration risk associated with de-risking, at least one industry spokesperson estimated that more than $250 billion in pension risk transfers have already taken place in the United States, Canada and the United Kingdom since 2007. That’s a lot of risk!
The Internal Revenue Service recently shut down the most popular method of pension de-risking by banning lump-sum distributions to retirees, forcing companies to turn to the use of insurance industry annuity products to offload their pension obligations. This is what Lincoln Electric has done.
Second, if the insurance company managing your pension assets goes belly up, beware of insurance insolvency laws. Insurance companies cannot file for bankruptcy like most other businesses.
When an insurer bites the dust, it becomes subject to state insolvency laws, which are arcane, nonuniform and, in some cases, inefficient. Liquidation plans usually trigger the obligations of the individual state guaranty associations, most of which are unfunded or underfunded. In addition, these state guaranty associations provide “coverage” in ways that might not make sense to the average Joe.
That’s exactly what happened when the Executive Life Insurance Co. of New Yorkliquidated after 22 years of failed “rehabilitation.”
Multistate insolvencies are highly complex and sometimes opaque. They require the coordination of all of the relevant guaranty associations, many of which offer coverage amounts that range from $100,000 per individual per lifetime to $500,000 per individual per lifetime.
Ohio’s life insurance guaranty association offers only $250,000 of “lifetime” protection to annuitants, which is in sharp contrast to the annual coverage provided to pensioners by the PBGC. This lifetime coverage limit is also inclusive of any individual’s life insurance policies.
The unilateral decision by corporate America to shift the risk associated with earned benefits onto the shoulders of vulnerable older Americans is simply wrong. Taking away uniform protections and subjecting retirees to the vagaries of state law – where the business of insurance is regulated – is discriminatory and unfair.
Among the other numerous unacknowledged dangers of de-risking is that, unlike pensions, insurance annuities may be subject to creditor claims and bankruptcy.
It’s why Ohio retirees need to tell their state elected officials about the new dangers of pension de-risking and the need to immediately put legal protections in place without delay.
The nonprofit ProtectSeniors.Org has already made headway in Connecticut and New York to protect retirees in those states from creditor claims against their newly de-risked pension assets. Efforts to protect more retirees from discrimination are underway across the country.
Pension de-risking is a true and growing retiree crisis in America. Ohio retirees and their legislators should take action before it is too late.
Edward Stone, who lives in Connecticut, is special counsel to ProtectSeniors.Org, a nonprofit retiree advocacy organization.”
Chronic traumatic encephalopathy (CTE) has been identified in 96% of the deceased NFL players that have been examined by researchers with the Department of Veterans Affairs and Boston University. Signs of CTE can be identified in living persons using brain scans, but as yet the disease can only be positively identified posthumously. Researchers believe that CTE comes from repetitive trauma to the head. The recent data from the research might be skewed since the study uses brains that have been donated for testing, and many of the individuals who have made provisions for posthumous testing have done so because they suspected CTE. However, in an interview with Frontline, Dr. Ann McKee, Chief of Neuropathology with the VA Boston Healthcare System said the latest numbers were “remarkably consistent” with past research suggesting a link between football and CTE.
The bottom line is this: CTE is real and it is seen at high rate in the brain tissue of athletes who were subjected to repeated head trauma. And in a cruel twist, the NFL Concussion Settlement will provide no awards for players who die from CTE after the settlement date.
Today, J.C. Penney announced that it would continue its pension de-risking efforts by purchasing a group annuity contract from The Prudential Insurance Company of America. While exact numbers of retirees affected and the terms of the agreement have yet to be released, it appears that this pension de-risking transfer is an annuity “lift-out” and the company’s defined benefit plan will not be terminated but the number of participants in the plan will be reduced by 25-35%. The annuity purchase is expected to close in December 2015. Last month J.C. Penney offered lump-sum payments to retirees and the company reported that approximately 12,000 retirees elected to receive these lump-sum payments.
As we predicted, more companies are seeking to enter into pension de-risking annuity transfers and the need for state legislation protecting retirees is even more important. Connecticut’s ground-breaking legislation, Public Law 15-167, An Act Extending Creditor Protection to Amounts Payable to a Participant of or Beneficiary Under an Annuity Purchased to Fund Employee or Retiree Retirement Benefits, went into effect yesterday.