annuitization

The IRS issued a notice today stating that it intends to amend regulations to prohibit a pension plan from offering a lump sum distribution to participants who are receiving annuity payments. The new guidance would take effect today, except for certain lump sum offers already in progress. While de-risking through lump sum offers becomes more limited, one state’s legislature made de-risking through annuity purchase a little more attractive: Connecticut passed legislation shielding annuity benefits from creditors of retirees when paid under a group annuity contract that replaced an ERISA-covered pension.
Continue Reading Pension De-Risking Gets New Rules: IRS Shuts Down Lump Sum Offers to Retirees While Connecticut Increases Safety of Group Annuity Contracts

The ERISA Advisory Council held a hearing last week on “Model Notices and Disclosures for Pension Risk Transfers.”  The Council, which advises the Secretary of Labor on the Labor Department’s administration of ERISA, is working to develop model disclosures to participants who receive lump sum offers in connection with de-risking transactions.  While the Council is focused on lump sums offered in connection with limited election windows, the model disclosures might apply any time an individual is offered a lump sum distribution in lieu of an annuity benefit.

The Council heard testimony from several witnesses, many of whom proposed text or offered suggestions to be included in model disclosures—including testimony by our own Robert Newman of Covington & Burling LLP.  While the Council deliberates, employers conducting lump sum windows might wish to consider some of the disclosures suggested at the hearing.
Continue Reading ERISA Advisory Council Considers Model Lump Sum Window Disclosures

The PBGC is proceeding with an initiative to collect information on what it calls “risk transfer activity” in defined benefit pension plans — essentially certain de-risking transactions — as part of the filing plan sponsors make when they pay PBGC premiums.  If approved by the Office of Management and Budget, the PBGC’s draft new premium form will require plan sponsors to report certain “Lump Sum Windows” and “Annuity Purchases” offered during the current or the preceding year.  As a result, the proposal would require reporting of certain transactions that occurred in 2014 or may occur in early 2015.
Continue Reading PBGC Proceeds With Proposal to Collect Information on Pension Risk Transfers

The Chairs of the two Senate committees that govern pensions sent a letter last week to the heads of government agencies overseeing pensions requesting additional guidance on pension de-risking.  The letter was written by Senator Wyden (D-Or), as Chair of the Committee on Finance, and Senator Harkin (D-IA), as Chair of the Committee on Health, Education, Labor and Pensions, and the letter was directed to the heads of the Department of Treasury, Department of Labor, Pension Benefit Guaranty Corporation (PBGC), and the Consumer Financial Protection Bureau. 
Continue Reading Senators Identify Concerns and Call for Guidance on Pension De-Risking

Earlier today, Motorola Solutions announced that it is transferring $3 billion of pension liabilities to Prudential.  The transfer covers approximately 30,000 plan participants who  currently receive monthly pensions.  In addition, former employees who have a vested benefit under the company’s pension plan but have not yet begun to receive benefits will be given a one-time…

Seems like we’ve written this before, but this time we (actually a federal district court) really means it:  the court in Lee v. Verizon granted last Friday Verizon’s motion to dismiss a class action lawsuit challenging its transfer in late 2012 of $7.5 billion of pension liabilities to Prudential (Lee v. Verizon, N.D.…

SPX Corporation recently announced it would transfer pension liabilities for 16,000 retirees to Massachusetts Mutual.  The amount of these liabilities is reported to be $625 million.  In addition, SPX will offer 7,500 former employees the option of taking a lump sum distribution from the SPX pension plan.  SPX expects that the two actions together will…

Earlier today, a federal district court granted Verizon’s motion to dismiss a class action lawsuit challenging its recent transfer of $7.5 billion of pension liabilities to Prudential (Lee v. Verizon, N.D. Tex.).  The court concluded that plaintiffs had failed to state a claim that the transaction violated ERISA’s disclosure and fiduciary obligations.  The…

The subject of pension de-risking continues to receive considerable attention.  Last week, the ERISA Advisory Council waded into the issue, holding a hearing on “Private Sector Pension De-risking and Participant Protections.”  The Council, which advises the Secretary of Labor on the Labor Department’s administration of ERISA, is examining the ways in which employers de-risk pension obligations, the legal constraints on these strategies, and whether the Labor Department should revise any current guidance or issue any new guidance addressing pension de-risking.
Continue Reading ERISA Advisory Council Holds Hearing on Pension De-Risking