Connecticut’s Democratic Governor Dan Malloy has signed into lawnew protections for retiree participants of pension plans that have been de-risked bytheir employers.

The law will restore retirees’ protections from creditors thatwere lost subsequent to de-risking.

ERISA-qualified retirement accounts generally protectparticipants’ retirement assets from creditors.

But as more sponsors have taken to the de-risking option in theface of higher Pension Benefit Guaranty Corp. premiums, alow-interest rate environment that inflates the discount rate onfuture pension obligations, and increased mortality rates, thequestion of whether or not annuitants’ benefits are protected fromcreditors has arisen.

Creditors could garnish annuity payments even though thoseassets were formerly protected under ERISA, according to a pressrelease from protectseniors.org, a non-profit advocacy for privatesector and government retiree protections.

“This is an important and historic win for Connecticutretirees,” said Edward Stone, counsel for protectseniors.org. “Thislaw restores creditor protection for Connecticut retirees andhopefully paves the way for other states to follow suit.”

In New York, a similar bill failed to make it out of the mostrecent legislative session.

Action at the state level comes as the Department of Treasury issued new regulationsprohibiting plan sponsors from offering existingretirees lump-sum pension buyouts.

C. William Jones, chairman of protectseniors.org, said thatwhile the law in Connecticut isn’t perfect, it is a significantvictory.

“De-risking is going to be a major issue going forward. We plan on workingwith legislation on a state-by-state level. I think Connecticutwill break the ice for us,” said Jones.

Pension rights advocates say de-risking schemes subjectretirees’ life earnings to too much risk, because the protectionsoffered by the Pension Benefit Guaranty Corp. are lost after thepension liabilities are moved from sponsors to insurancecompanies.

Each state’s insurance regulatory body provides varying levelsof guarantees for annuity products. Jones said the highestguarantee is $500,000. But that would only protect 10 years of a$50,000 pension, notes Jones.

“We’d like to see all state insurance regulators guarantee atleast $500,000. But even if they did, there is still the risk oflosing more than what the PBGC protect if an insurance company goesunder,” he added.

In the meantime, Jones says he and his organization will “takewhat we can get.”

“What happened in Connecticut is a big deal. Here is a statethat recognized a problem and took action,” he added.