DOL Might, or Might Not, Rewrite Pension Risk Transfer Annuity Regs

The department prepared the new Interpretive Bulletin 95 review to comply with section 321 of the Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act. Secure 2.0 drafters asked the department to tell Congress whether it thinks the bulletin needs to be revised or supplemented with additional guidance.

The market data: Between 2015 and 2022, about 3,135 of the 39,839 single-employer defined benefit plans insured by the PBGC used either lump-sum pension benefit buyouts or annuity purchases to transfer pension risk, according to a new PBGC report cited by Su.

In 2022, the single-employer plans included in the report still had about 24 million participants, but, over the previous seven years, benefit buyouts and annuity purchases had removed 3 million participants from the PBGC’s risk pool.

Pension benefit buyouts were much more common than group annuity purchases, but group annuity purchases affected more people.

In 2022, for example, lump-sum buyouts removed fewer than 100,000 people from the PBGC risk pool. Group annuity purchases eliminated the need for the PBGC to protect the pension benefits of 300,000 people.

The annuities: Some stakeholders told Labor Department officials that private equity firms are buying the annuity issuers and writing the annuities through reinsurance company affiliates based in jurisdictions with weak capital requirements.

Other stakeholders told department officials that many life insurers with traditional owners are using similar strategies, and that private equity owners may be safer than traditional owners because they have better access to outside capital, Su said.

“A few stakeholders believe that captive and offshore reinsurers may warrant more scrutiny than unaffiliated domestic reinsurers licensed in the United States, due to the difference in regulatory requirements,” she added.

Whether state insurance guaranty funds provide protection that’s better than or worse than PBGC pension fund insurance has been another controversial topic.

“The issues raised by stakeholders are complex,” Su said. “There were few, if any, areas of consensus.”

The department should get more public input and try to keep any changes to the interpretive bulletin from having unintended consequences, Su said.

Julie Su. Credit: U.S. Department of Labor