With a new administration in Washington, there has been a lot of talk about Medicare, Social Security, and the Affordable Care Act (ACA). One very crucial issue that has largely flown under the radar is the fact that hundreds of thousands — and potentially millions — of private sector retirees are having their earned pensions stripped away and Congress so far has done nothing about it.
Valvoline, McClatchy, United Technologies, Motorola, Verizon, J.C. Penney, and General Motors are just some examples of corporations that have already stripped away or “de-risked” their retirees’ pensions.
The practice involves selling off retirees’ pension assets to third parties, most often insurance companies, thus converting them to group annuities. This may benefit the company’s bottom line but it can potentially be very harmful to the retiree. Unlike pensions, annuities lack federal protections under the 1974 law known as the Employee Retirement Income Security Act (ERISA). and they lose the safety net of the federal Pension Benefit Guaranty Corporation (PBGC).
De-risked pension annuities also leave retiree assets vulnerable to bankruptcy, litigation and creditor claims, whereas pensions are protected. De-risked pension annuities also leave retiree assets vulnerable to bankruptcy, litigation and creditor claims, whereas pensions are protected.
Right now, if a retiree’s home is foreclosed upon, declares bankruptcy or is sued, those group annuities they were forced to accept as a pension replacement can be seized in 48 states, leaving them destitute.
According to the PBGC’s 2016 annual report, there are 1.5 million people that receive benefit payments from the PBGC because they were a part of failed single or multi-employer pension plans.
If an insurance company holding a massive annuity goes bust or somehow doesn’t make its payments, the retiree is no longer protected under federal law and the retirees are subject to a state-regulated guaranty association. These associations are generally not funded for such a calamity and provide significantly less security than mandated by ERISA.
Furthermore, a retiree is then at the mercy of whichever state he or she happens to live in at the time and even healthy guaranty associations provide widely varying levels of maximum lifetime protection. If you live in New Hampshire, for example, you’re out of luck. That state’s maximum payout is $250,000, not per year, but for an individual’s lifetime. Once that lifetime limit is reached, a person is out of luck regardless of age or economic circumstance. Say goodbye to economic security in retirement.
This is why it is vital that the new Congress and the Trump administration make protecting older Americans a priority. Lawmakers should prohibit de-risked pensions from being transferred without proof that the company buying them is financially healthy and retirees’ ought to be provided all relevant financial disclosures. It is important that legislation is passed that extends ERISA-like protections to America’s retirees. We could also simply ban pension stripping altogether.
ERISA was enacted in a bipartisan fashion by a Democratic majority in Congress and signed by Republican President Gerald Ford to protect older Americans’ earned retirement benefits. Pension stripping is a growing problem across the nation, and I urge the new administration to make protecting pensions a priority.
James Casey is president of ProtectSeniors.org, a Washington-based non-profit retiree group focusing on achieving legislation and regulatory action to protect retired and older working Americans.
The views expressed by contributors are their own and are not the views of The Hill.
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