InvestmentNews Editorials

Advisers: Make sure your clients aren't owed pensions

Insurance companies may need help finding forgotten pensioners who left a company with a defined-benefit plan long ago

Mar 10, 2018 @ 6:00 am

Here's a job for investment advisers: Help MetLife, and probably other major life insurance companies, locate retired workers to whom they owe pensions.

Companies have been offloading pension liabilities to insurance companies at a growing rate. That is, the insurance companies take over the responsibility for paying the promised pensions when the employees eventually retire.

This has relieved companies of the problem of keeping track of former employees, as well as the responsibility of having to eventually pay them. It also has reduced their annual premiums to the Pension Benefit Guaranty Corp., which have been rising rapidly in recent years.

All companies sponsoring single-employer defined-benefit plans pay a flat rate of $74 per participant, up from $37, 10 years ago, and a variable premium of $38 per $1,000 of unfunded vested liability, up from $9. These premiums are a powerful incentive for firms to pay an insurance company to take these pensions off their hands.

But Massachusetts Secretary of the Commonwealth William Galvin claims his department has located hundreds of MetLife's "lost retirees" in the state. Thousands more likely live in other states, and they need to be found and paid their pensions.

Other large insurance companies who've been a party to these so-called pension-risk-transfer deals may have similar problems locating former employees who have changed jobs, possibly more than once, and also have changed addresses, possibly several times. Often these workers have forgotten they are owed a partial payment by a former employer.

Investment advisers can help locate retirees who might be owed a pension by one of the insurance companies by asking clients, old and new, about their employment histories: where they worked, how long they were with each employer, and any changes of address during their working lives.

They can help a client who might have earned a right to a pension reach out to one or more former employers to find out if a vested pension was earned, if the pension obligation was handed off to an insurance company and if so, which one.

Often these pensions were earned early in the employee's career and might have been forgotten as the career progressed and he or she earned a far larger pension with a later employer.

Even if none of their clients has forgotten a pension, the adviser's interest will have shown that they are focused on their clients' welfare.

Meanwhile, Mr. Galvin has provided a service not only to the "lost retirees" of Massachusetts, but to such retirees everywhere, and to the insurance industry. His action should encourage insurance companies to search their own records to make sure they have located every worker who is owed a pension by them.

As more and more corporations seek to reduce their pension liabilities, it is likely that the major insurance companies will have to improve their systems greatly in order to keep track of those workers whose pensions they have assumed the responsibility of paying.

The first major company to adopt this strategy was General Motors, which in June 2012 purchased a group annuity contract for the 118,000 retirees in its $33 billion U.S. salaried defined-benefit plan. It was soon followed by many others, and by the second quarter of 2017, single-premium buyouts of corporate pension liabilities totaled $82.4 billion, according to the LIMRA Secure Retirement Institute.

Unlike General Motors and a few others, not all of the employees covered by these annuities were retirees, but often were active workers in defined-benefit plans that had been closed by their employers anxious to shed the liabilities.

Companies transferred an additional $23 billion of liabilities to insurance companies in 2017, an increase of 68% over 2016.

Mr. Galvin's action should be a warning to these insurance companies that they had better get their systems up to speed to keep track of retired workers covered by these annuities.

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

Oct 22

Conference

San Francisco Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

INTV

Why advisers are pessimistic about the economy

Deputy editor Bob Hordt and senior research analyst Matt Sirinides discuss a recent InvestmentNews survey of advisers, most of whom see a recession ahead before the next presidential election.

Latest news & opinion

10 biggest breakaways of Q4

Echelon Partners lists the 10 biggest adviser moves out of wirehouses during last year's final quarter.

6 biggest RIA acquisitions of 2018

As M&A involving registered investment advisers hit another record last year, these six deals topped the list

Anatomy of an annuity buyout offer

Readers are invited to comment on whether the columnist should keep or ditch her Ohio National VA contract

Factions emerge in OneFPA overhaul

Critics fear the FPA is trying to take money and power from local chapters, which officials and proponents call overblown.

RIA M&A sets another record in 2018

Last year's 181 deals were twice the number recorded five years ago, and the average asset size of the acquisitions was $1.3 billion — 31% larger than in 2017.

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