Guest Op-Ed: Don’t throw retirees to the wolves of Wall Street
By Frank Bruzek
For 50 years, the Employee Retirement Income Security Act (ERISA) of 1974 has provided a safety net that protects older Americans’ pensions from corporate and financial predators.
Such protections would have been a lifeline for my family in the early 1960s, when the Philadelphia-based leatherworks company where both my mother and father worked for over 20 years closed without warning. The closure eliminated my parents’ pay and promised pension benefits with zero recourse. I will never forget the look on my father’s face all those years ago, the day he came home and told me and my sister, “We don’t have a job anymore.”
Our family relied on unemployment assistance until Dad found work as a maintenance man at a nearby Camden high school and Mom started cleaning homes. It was a difficult time that could have been alleviated by the ERISA law’s basic pension protections.
With that safeguard in place for Americans today, surely nothing could threaten to wipe out retirees’ pension savings nowadays, right?
Wrong. A disturbing trend has taken hold in corporate America, in which earned and negotiated pension plans are being dumped into poorly regulated group annuity contracts, with no forewarning to the affected retirees.
On March 6, Verizon announced that the company had completed a $5.9 billion transfer of 56,000 union and management retirees’ pensions to New Jersey-based Prudential Financial Inc. and Reinsurance Group of America Inc. (RGA).
That was the first time I heard about such a fundamental shift in our fixed, post-retirement incomes. Most of us only found out a week later, when we received a letter in the mail.
These transactions, known as pension risk transfers or pension de-risking, allow corporations to cut loose the defined-benefit pension plans owed to their loyal workers. Insurance companies and private equity investors, who are not bound to the same ERISA rules, then take over the fiduciary responsibility of paying monthly pensions.
This cost-shaving gambit has spread like wildfire in recent years. Verizon helped ignite the trend in 2012 with its first pension risk transfer, an $8.4 billion deal that transferred 41,000 managers’ pensions to group annuity contracts under Prudential. Numerous companies followed suit with jumbo de-risking deals of their own, including Ford, Shell, AT&T, Federal Express and Lockheed Martin, to name just a few.
Pension risk transfer sales have totaled nearly $350 billion since 2012, including $45.8 billion in 2023 alone. That figure trails only the record $48.3 billion transferred in 2022, according to data from LIMRA, an insurance research association.
It could get even worse in 2024. A survey commissioned by MetLife of U.S. companies with pension plans showed that 90 percent were interested in offloading those assets via pension risk transfers.
These deals are admittedly a win-win for the institutional players involved. Corporations make a tidy profit and free up their balance sheets, while commercial insurers and the private equity investors dealing with them get billions of dollars to invest as they please.
The only loser in the deal? Workers and retirees who trusted their employers to keep their promises.
The main problem is ultra-weak protection at the state level. Insurance contracts are self-regulated by 50 different state jurisdictions, leaving them with highly variable levels of supervision. The federal protections afforded to our retirement benefits by ERISA, upon which pensioners have relied for decades, are out the window.
If something were to happen to our pensions — maybe an economic crisis renders the group annuity insolvent, or private equity fund managers make a series of bad investments — the only backstops available would be our respective state guaranty associations. The cap on lifetime replacement payments in most states is $300,000, which only buys a few years if you expected to depend on that money for the rest of your life.
This was not a concern when our pensions were paid out by our former employers. Among the strongest ERISA protections at our backs was the vital Pension Benefit Guaranty Corporation (PGBC) backstop, which uses the long arm of the federal government to assure lifetime pension payments to retirees ensnared in failed plans.
In other words, we had peace of mind. And isn’t that the whole point of retirement?
Worryingly, annuities have become cash cows for barely regulated private equity firms in recent years. These firms have been buying insurers or taking minority stakes in them in exchange for managing their premium-rich assets. According to a recent Bloomberg column, the credit agency Moody’s “is concerned about concentration risk, where a few large private equity houses are responsible for a fast-evolving financial ecosystem and thus have an outsize influence in the economy.”
Private equity managers are focused on their own profits, not America’s retirement security. Handing them total power over our benefits with little oversight is likely a recipe for disaster.
Retirees like me refuse to let these hush-hush buyout deals go unnoticed, and we demand that Congress modernize ERISA to restore its intended purpose of protection, and to close the loopholes now being exploited.
Retirement plan fiduciaries must be required to negotiate with insurance companies to restore the ERISA protections that are lost in these transactions. State laws must also be passed to provide realistic backstop protections.
Our former employers guaranteed these pensions in return for our decades of labor, and we stuck with them for the long haul. Now we need to make sure they do the same for us.
A resident of Mullica Hill, NJ, Frank Bruzek is the Chief Financial Officer of the nonprofit Association of BellTel Retirees. He retired in 2002 after spending his entire 30-year career with Verizon.