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New Rules for Pension Risk Transfers?

As more companies prepare to offload some of the risk in their pension plans, an advisory group wants the Labor Department to issue new guidance.

By Susan Kelly | Updated on December 10, 2013
This year’s improvement in pension plan funding is seen as paving the way for a groundswell in pension de-risking transactions next year. And the prospect of additional rules for such transactions from the U.S. Department of Labor isn’t expected to interfere significantly with that pickup.

Companies can lower the risk involved in defined-benefit pension plans by reallocating plan assets to hold more fixed-income securities, by offering lump-sum buyouts to some participants, or by buying an annuity to cover a group of plan participants.

The two types of de-risking transactions—lump-sum buyouts and annuity purchases—hit the headlines in 2012 when General Motors, Verizon and Ford did big deals. Verizon transferred $7.5 billion of pension obligations to Prudential by purchasing a group annuity for 41,000 retirees, while Ford offered buyouts to 98,000 retirees and former employees. General Motors unloaded $26 billion of its pension liabilities by offering buyouts to some retirees and buying a group annuity for those who didn’t accept the lump sum and other retirees.

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