In recent years, major corporations like FedEx and Alcoa have shifted retiree pensions to annuities offered by life insurers. While these pension risk transfers shift obligations to an insurance company from an employer, they don’t change the benefits retirees receive. That is because, like traditional pensions, an annuity guarantees retirees a stream of income they cannot outlive.
These transfers allow companies to focus on their core businesses. At the same time, they let life insurers do what they do best — manage long-term risk and protect consumers’ retirement security.
Critics of these deals argue that retiree benefits are better protected by the federal law that governs pensions than state regulations that oversee annuities.
They’re wrong.
The National Organization of Life and Health Insurance Guaranty Associations (NOLHGA), whose members protect policyholders in insurer insolvencies, said it best: “Even though both (the state and federal) systems focus on payer solvency, (state) insurance regulation generally holds life insurance companies to stricter financial standards and more intensive oversight than are applied by pension regulation to single-employer pension plans.”
NOLHGA also noted that the effectiveness of the state system was made clear in the last financial crisis. It said, “during the same 2008-2015 period that saw the failures of 931 pension plans affecting more than 560,000 participants, no active annuity insurer with unsatisfied annuity obligations was liquidated.”
Strong regulatory oversight that prevents insolvencies is the best way to protect consumers. But, in the rare event a life insurer becomes insolvent and is liquidated, state guaranty associations offer annuitants an important safeguard. They collect mandatory assessments from other insurers and pay covered benefits up to limits set by each state. For benefits above these limits, annuitants also are entitled to any remaining assets from the insolvent company.
This stringent oversight and safeguards protect retirees’ pension benefits managed by life insurers. With extensive experience managing long-term obligations, life insurers can guarantee retirees their benefits will continue no matter how long they live.
Jim Szostek is Vice President & Deputy, Retirement Security at the American Council of Life Insurers (ACLI). He helps guide ACLI policy on legislation and regulations affecting the U.S. retirement system. Prior to joining ACLI in 2008, he held positions at CIGNA and The Hartford.
