Retirement 2.0blog

Pension advocacy group calls for temporary halt to lump-sum buyouts

Spinning off pension liabilities may help investors, but hurt retirees.

Oct 19, 2012 @ 8:51 am

By Mary Beth Franklin

Over the last few months, several large companies, let by auto giants Ford and GM, announced plans to spin off their traditional pension plans by transferring their liabilities to an insurance company or offering lump-sum payouts to retirees and certain former workers.

Verizon was the latest corporation to hop on the de-risking bandwagon, prompting calls from a leading pension advocacy group to halt such actions until Congress can review the impact on workers and 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, policy director of the Pension Rights Center in Washington.

“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” Friedman explained. In addition, lump sum payouts shift the burden from employers to individuals to ensure that the money lasts throughout retirement.

Earlier this week, Verizon joined GM in announcing that it is transferring the pensions of certain retirees to an insurance company. In addition, GM, Ford, and several other companies have made lump-sum buyout offers to certain retirees and former employees. (See related slideshow.)

The Pension Rights Center said it plans to ask Congress when it reconvenes a lame-duck session after the November elections to take steps to put a temporary stop to pension offloading and lump-sum buyouts to give policymakers time to examine whether these strategies could result in sellouts of retirement security.

“We need to stop, take a breath, and make sure that the retirement security of the people affected by these moves is fully protected,” she said in a statement issued by the center late Thursday.

Some of the questions that the group wants Congress to address concerns the security of the annuities being purchased in plan termination; the exposure of the insurance companies that are taking on these large group annuity contracts; and whether individuals truly understand the consequences of trading in guaranteed income for life for a lump sum.

The Pension Rights Center has fact sheets on its website (www.pensionrights.org ) about what happens when a pension is transferred to an insurance company and on deciding between a lump sum or an annuity . In addition, the Pension Benefits Guaranty Corporation has a list of frequently asked questions on plan terminations under the “workers and retirees” section of its website (www.pbgc.gov).

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Featured video

Events

The power of data

Your clients have financial news and data at their fingertips, but donít know how to interpret it. Katy Gibson of Envestnet|Yodlee and Blake Kannady of Envestnet discuss the power of leveraging aggregated data.

Recommended Video

Path to growth

Latest news & opinion

Relying on trainees, Merrill Lynch boosts adviser headcount in 2017

Questions remain about long-term effectiveness of wirehouse's move away from recruiting experienced brokers.

Supreme Court review of SEC judges could roil pending cases

But long-term, the agency may get around questions of constitutionality by changing the way it brings on administrative law judges.

Lightyear Capital takes 50% stake in $9 billion HPM Partners

Private equity backing could fuel acquisitions by the large RIA.

Tax reform: 7 essential strategies for financial advisers

While advisers face the difficult task of analyzing the law's impact, they will also have a significant opportunity to prove their value by implementing money-saving strategies for clients as well as their own businesses.

Tax law: Everything advisers need to know about the pass-through provision

The provision is tricky, but could provide advisers and business-owner clients with sizable tax savings.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print