October 19, 2012 (PLANSPONSOR.com) – In the wake of moves by several large companies to de-risk their defined benefit (DB) plans, the Pension Rights Center (PRC) is calling for a moratorium on such actions.
The Center plans to ask Congress to take steps to put a temporary stop to pension buyouts and lump-sum offerings to give policymakers time to examine whether these strategies could result in sellouts of retirement security.
Verizon has signed a partial pension buyout deal with Prudential (see “Verizon Signs Partial Pension Buyout Deal”), and other companies, including auto giants GM and Ford, are offering lump sums to certain groups of participants (see “PRC Keeping List of Lump Sum Offerings”). The Center said it is concerned about the impact of both approaches on current and future retirees.
“These employers are looking to cut costs and reduce long-term liabilities to make their companies more attractive to investors, but ‘de-risking’ can be risky for workers and retirees,” said Karen Friedman, the Center’s executive vice president and policy director. “Insurance company annuities backed by State Guaranty Associations could leave retirees with less protection than the pensions provided by their companies backed by the insurance provided by the Pension Benefit Guaranty Corporation. Also, lump sums place the burden on individuals to ensure that the money lasts throughout retirement. We need to stop, take a breath, and make sure that the retirement security of the people affected by these moves is fully protected.” Friedman added: “How secure are the annuities that are being purchased in plan terminations? What is the exposure of the insurance companies that are taking on these large group annuity contracts? Do people understand the consequences of taking a lump sum? These are the types of questions that we want to make sure are addressed.”