Let The Experts Manage Long-Term Risk
[IMPACT+: This series features IMPACT posts that take a longer look at vital financial security topics that affect American consumers. A version of this article appeared on Insurance News Net.]
The free market alone cannot build and sustain America’s $26.9 trillion gross domestic product and a 3.9% unemployment rate; thoughtful public policy is needed to help U.S. companies thrive financially and support employment.
Unfortunately, the U.S. Department of Labor is expected to soon release a report with possible policy recommendations that could threaten a proven method used by many American businesses to reduce their risk and ensure retirees receive their promised pensions from lifetime income experts: pension risk transfers to group annuity contracts with life insurance companies.
In today’s hypercompetitive global economy, companies regularly review their operations and balance sheets, searching for ways to modernize while eliminating unnecessary risks and costs.
Many venerable U.S. corporations have millions and sometimes billions of dollars in future pension obligations for retirees on their books. Because Americans are living longer, some of these companies face liabilities that could stretch on for decades.
Instead of trying to administer these uncertain risks, many companies have sensibly looked to transfer their pension plan benefit obligations to firms that have expertise in managing long-term liabilities: life insurance companies.
Life insurance companies possess a long-range perspective unlike any other industry. A life insurance policy issued today may not need to be paid until the 22nd century. And a life insurer’s annuity is guaranteed for the life of the annuity holder, no matter how long they live. Life insurers invest prudently and conservatively with a long-term lens so that they will be ready to serve their customers wherever and whenever they are called upon.
However, as directed by Congress, the DOL is currently reviewing its rules concerning these transfers of pension risks. Since the current rules were introduced nearly 30 years ago, they have worked extremely well for companies and their employees, thanks to the long-term stability and soundness of life insurers.
Many of the largest U.S. life insurers today have been around for more than 175 years. Through world wars, the Great Depression, recessions and global pandemics, America’s life insurers have developed the expertise to manage long-term risk through all types of economic conditions. And U.S. life insurers have been handling pension transfers from corporations for more than a century.
Life insurance companies are highly regulated by the states to ensure that life insurers can fulfill their long-term promises to customers. Insurer solvency regulations are actively monitored and enforced by state regulators to ensure that insurers’ assets are more than sufficient so that every annuity holder receives the income they have been promised for as long as they live.
The system works. In fact, it works better than private pension plans.
Since the DOL’s current rules were implemented in 1995, no life insurance company has failed to make a group annuity payment to a plan participant following a pension risk transfer. In that same period, more than 2,600 private employer traditional pension plans have failed.
It’s no surprise that corporations look to life insurers for help managing their long-term pension obligations. By removing pension risk from their balance sheet, America’s businesses can focus on what they do best: innovating, competing and providing jobs for hard-working Americans. And retirees can rest assured that their hard-earned pensions are being safeguarded by the most experienced managers of longevity risk, U.S. life insurers.
The DOL should not discourage the use of an effective risk-reduction strategy for U.S. companies with a proven record of safety and soundness for retirees.
