The 2015 ERISA Advisory Council will examine disclosure guidelines sponsors use when offering lump-sum pension buyouts and risk transfers in the form of group annuity purchases.
The redoubled effort on risk transfers comes after the council’s work in 2013, when it recommended improved employee disclosures and giving plan participants at least 90 days to decide whether or not to take a lump-sum buyout offer.
It also comes at a time when rising premiums assessed by the Pension Benefit Guaranty Corp. and new mortality tables are prompting more employers to consider risk transfers.
A recent Aon survey of sponsors of defined benefit plans showed 44 percent have already offered terminated employees a lump-sum payout; another 47 percent said they expect to in 2015.
In 2014, sponsors transferred $128 billion of pension liabilities off their books. Deals with Bristol-Meyers Squibb and Motorola represented half of the total. All told, 277 risk transfer contracts were issued, according to Limra.
In February, the Government Accountability Office issued a report critical of lump-sum buyouts and annuity transfers, which move the responsibility of paying monthly benefits to insurance companies.
Participants too often receive too little information on the potential ramifications of accepting a buyout and foregoing guaranteed lifetime monthly payments, according to the GAO’s report.
In a notice declaring its objective, the Advisory Council said its focus will be on the information participants need to make informed decisions.
Specifically, the council will compare the value of lump-sum offers to annuities purchased in the retail market, and assess what information a participant would need to compare the value of the two options.
How sponsors are articulating potential risks to lump-sum payments, regarding longevity and potential investment risk, also will be examined.
Also, factors like the age of participants and the potential for diminished mental capabilities in older retirees will be weighed, and whether or not fiduciaries should be required to consider those circumstances.
James Singer, a partner at St. Louis-based Schuchat, Cook and Werner, and one of three members of the 15-member Advisory Board representing employee interests, has been named chair the risk transfer issue.
The council’s next scheduled meeting for May 27-29.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
