PBGC’s First Opinion Letter in 24 Years Reaffirms Limits of Pension Insurance

The Pension Benefit Guaranty Corporation issued its first opinion letter in more than two decades, using the newly revived guidance process to clarify how certain pension risk transfer transactions should be treated under federal law, while reaffirming the agency’s long-standing position that pension guarantees end once obligations are transferred to an insurance company.

The June 15 opinion letter was sent to Gregory Katz, senior counsel at law firm Bond, Schoeneck & King PLLC in New York. The letter refers to the client, for which the letter was requested, only as “the Company” and concludes that annuity buyouts involving employees who remain employed generally should not be counted when determining whether a defined benefit plan has experienced an “active participant reduction” reportable event under the Employee Retirement Income Security Act. In explaining that conclusion, the agency also reiterated that once pension liabilities have been transferred to an insurer, the PBGC no longer bears responsibility for paying benefits if that insurer later fails.

The guidance is significant because it represents the first opinion letter issued since the PBGC restarted its opinion letter program earlier this year after a 24-year hiatus. The program is intended to provide formal, public interpretations of how the agency applies Title IV of ERISA to specific factual situations, giving plan sponsors and practitioners additional regulatory clarity.

In the opinion letter, the PBGC considered a frozen pension plan for which the plan sponsor intended to purchase annuity contracts covering a large portion of its active participants while those employees continued working for the company. The agency determined that those participants may generally be excluded when calculating whether the plan experienced an active participant reduction requiring notice to the PBGC because the transaction itself does not increase the agency’s financial exposure.

Instead, the PBGC reasoned that pension risk transfers of this type reduce, rather than increase, the likelihood that the PBGC would ultimately become responsible for paying benefits. As a result, the letter stated, such transactions are not the type of early-warning event the reportable event rules were designed to capture.

Although the primary purpose of the three-page letter was to address reporting requirements, retirement industry observers may also focus on another portion of the PBGC’s analysis. The opinion reiterated the PBGC’s decades-old interpretation that its insurance protection ends once pension obligations are assumed by another insurance company through an annuity purchase.

That position increasingly has come into focus as pension risk transfers have accelerated in recent years and as participants have challenged some transactions in court. Critics of the agency’s interpretation have argued that ERISA should be read to preserve PBGC protection after pension obligations are transferred to insurers, pointing to earlier agency statements from the 1980s and contending that the current interpretation is inconsistent with ERISA.

The revived opinion letter program could signal a broader shift in how the PBGC communicates with the retirement industry. Rather than relying primarily on regulations or informal guidance, the agency has stated it plans to publish formal responses to fact-specific requests, creating a publicly available body of interpretations that plan sponsors, employers, advisers and attorneys can use when navigating complex pension rules.

While opinion letters apply only to the facts and circumstances presented by the requesting party and are not binding on other plans, they can provide an important indication of how the PBGC interprets and intends to enforce its regulations. With the program now active again, additional guidance on other areas of pension law could follow.

The Department of Labor, for its part, has used opinion letters more frequently, along with amicus briefs, to address topics that frequently come up in litigation, such as retirement plan forfeitures.

Pension risk transfers, addressed in the PBGC letter, had faced an uptick in litigation scrutiny of the past few years. There have been 13 cases filed challenging PRT transactions since 2024: 12 in 2024, and one in 2025, according to information from the law firm Davis & Harman LLP.