Mary Beth Franklin

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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

Pensions, retirement
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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. (Bloomberg)

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).

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