October is National Retirement Security Month, a time to highlight the importance of a secure retirement. One proven way to achieve retirement security is through guaranteed income from an annuity.
In recent years, businesses as varied as JCPenney, FedEx, Albertson’s and Alcoa have shifted retiree pensions to annuities offered by life insurers. While these pension risk transfers shift obligations from the employer to a life insurance company, they don’t change the benefits retirees receive. That is because, like traditional pension benefits, annuities guarantee retirees a stream of income that cannot be outlived.
Managing risks associated with long-term monthly income commitments is what life insurers do best. It’s their business focus. By turning to life insurers to protect their retirees’ retirement security, employers can turn all of their attention to their businesses and their customers.
Some argue that retiree benefits are better protected by the federal law governing corporate managed pensions than state rules governing life insurers. Yet, while federal rules permit pension plan sponsors to underfund their pension obligations, every state insurance regulator requires life insurers to fully fund their annuity commitments.
As the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA), whose members protect policyholders in insurer insolvencies, put it: “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.”
The effectiveness of the state system was made clear in the last financial crisis. As NOLHGA points out, “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.”
Every state requires life insurers to hold reserves equal to their financial commitments and to have extra capital set aside as a cushion to weather the unexpected. Strong state oversight of life insurers is focused on ensuring there are resources set aside to pay each and every retirement check. This is how to protect retirees.
With over 175 years of extensive experience managing long-term obligations, life insurers can guarantee in writing to retirees that their benefit checks 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.
