Other Voices

Texas retirees worry about pitfalls of ‘pension de-risking’

J.C. Penney announced that the store contracted with Prudential to take over the pension assets for 43,000 retirees via a group annuity contract.
J.C. Penney announced that the store contracted with Prudential to take over the pension assets for 43,000 retirees via a group annuity contract. AP

An ongoing crisis faces retirees all across America and in Texas.

Corporations across the nation are selling off their retiree pension responsibilities to investment funds or insurance companies, without the retirees’ consent.

The practice is known as pension de-risking, and it strips retirees of all legal protections the U.S. Congress intended under 1974’s Employee Retirement Income Security Act, including the financial safety net of the Pension Benefit Guaranty Corp.

On Oct. 2, Plano-based J.C. Penney announced that it too was cutting ties with 43,000 retirees, contracting with Prudential to take over the pension assets for these retirees via a group annuity contract.

Pension de-risking is not the only way J.C. Penney has tried to rid itself of its retirees.

Prior to the pension spinoff, J.C. Penney offered its retirees lump-sum pension buyouts, which have since been accepted by about 12,000 of its retirees and 1,900 former employees.

J.C. Penney retirees are not the only ones left adrift by the de-risking trend.

According to Mercer Consulting and CFO Research’s 2015 Risk Survey, almost half of corporate sponsors managing defined benefit pension plans in the U.S. will consider some form of lump-sum payouts within the next two years.

Other major U.S. companies that have already spun off retirees’ pensions to insurance companies include Verizon, General Motors, Motorola and Bristol Myers Squibb.

This summer, the International Monetary Fund warned that increasing pension asset transfers toward de-risking, might actually threaten the stability of the entire U.S. financial system. That concerned opinion was seconded by the International Organization for Economic Cooperation and Development.

Few recognize that when a company sheds its retirees’ pension assets to an insurance company, it has the effect of converting the pensions into annuities. Annuities lack the same legal and security protections that pensions have.

Annuities are threatened by potential bankruptcy and creditor claims, whereas pensions are protected. This is a major distinction.

Even more disturbing is how unevenly pension de-risking can affect the residents of a particular state.

If the insurance company managing your pension assets goes belly up, its obligations are passed along to one of the 50 individual state guaranty associations, most of which are unfunded or underfunded.

In the case of Texas’ life insurance guaranty association, it offers only $250,000 of “lifetime” protection to annuitants, which is in significant contrast to the coverage provided to pensioners protected by the federal PBGC.

It is unclear that the U.S. insurance industry has any ability to meet its new and growing financial obligations to America’s retirees. As we have seen from the financial crisis of 2008, no company is too big to fail, be it AIG, Citigroup or GM.

It is unacceptable that older Americans should have to worry about companies de-risking retirees’ hard-earned pension assets.

The ERISA national pension protection law was enacted by Congress specifically to protect older Americans’ earned retirement benefit plans.

Two nonprofits, the Association of BellTel Retirees and ProtectSeniors.Org have made progress in states, including Connecticut and New York to protect retirees there from falling victim to creditor claims being made against their newly de-risked pension assets.

We need action and protections in Texas, too.

Pension de-risking is no small problem. It is a growing national crisis likely to impact millions of retirees across the U.S.

Texas retirees need real protections on the state level, where insurance companies are regulated.

I hope my fellow retirees and our state legislators will take action before it’s too late.

C. William Jones of Frisco is chairman of ProtectSeniors.Org, a nonprofit retiree advocacy group, and was one of 41,000 Verizon retirees whose pensions were de-risked.