Loose regulations at the Capitol. Dangerous practices by Wall Street. Every day, Americans put their faith in their money to work.
Americans have long had an unfortunate habit of reacting to crises rather than anticipating them. When it comes to corporate fraud, that trend cost the country dearly during the 2008 recession from 2007 to 2009. And if we don't take a firm stand now, that trend could soon deal a cruel blow to America's growing retiree population.
“Here's the big problem we're not facing. Insurance contracts are self-regulated by 50 different state jurisdictions, leaving insurance contracts relatively free from any regulation.”
The looming threat is called pension risk mitigation. This happens when companies decide to absolve themselves of their fiduciary responsibility to deliver the retirement benefits promised by the defined benefit pension plans they created years ago. They do this by transferring obligations to insurance companies, private equity funds, or other financial investors.
Pension guarantee disappears
Initially, the risk aversion trend was framed by companies as a rational way to protect against interest rate changes and market volatility that could change their balance sheet obligations. They simply transfer pension obligations to companies that continue to pay pensions to retirees.
“ If you are 72 years old and your annual pension is $30,000, you and your spouse will be unhappy in 10 years.”
But pension de-risking, also known as pension stripping, is more than just an administrative act that redirects retirees' earned pensions. This allows retirement assets to be transferred across industries, much like poker chips in a casino.
General Motors GM,
began the de-risking trend in 2012 by replacing all or part of its pension obligations with annuities issued under group pension contracts. The deal is the largest ever, with the automaker paying PRUs to Prudential Insurance Company of America.
$29 billion to take these pensions off the balance sheet.
plus: How scammers stole an astonishing $50 million from seniors, $30 at a time
Corporate risk avoider list
Meanwhile, that same year, I was one of 41,000 Verizon managers whose pensions were transferred to Prudential in a $7.5 billion deal. Fortunately, Prudential has maintained its promised payments and fulfilled its responsibilities to retirees.
In the decade since our pension assets were stripped away, millions of retirees have been similarly cut down without our consent or prior knowledge. Ford F.
DowDuPont, Federal Express FDX,
JC Penney, Lockheed Martin LMT,
and The New York Times, Inc.
are some of the hundreds of companies that have transferred their pension obligations to insurance companies. Pension risk mitigation transfers in 2019 and 2020 each exceeded $25 billion.
Here's the big problem we're not facing. Insurance contracts are self-regulated by 50 different state jurisdictions, leaving insurance contracts relatively free from any regulation.
The Employee Retirement Income Security Act of 1974 (ERISA), Congress's safety net intended to protect older Americans from fraud on valuable retirement assets by corporate and financial predators, leaves pensions at risk. and will no longer be applied.
To make matters worse, the Pension Benefit Guaranty Corporation (PBGC), created by ERISA as a backstop to protect older Americans, is out the window as well.
Before 1974, there was little protection for superannuation. When the Studebaker Company of South Bend, Indiana, ended its employee pension plan in 1963, more than 4,000 autoworkers received almost all of their promised pension plan benefits without any reimbursement. I lost it without being able to do it. It was a story repeated over and over again, so Congress and the White House took action.
read: 3M's CEO will receive a $26 million pension — as the company freezes pension plans for employees
Safety net stripped away
According to the PBGC, approximately 920,000 retirees in more than 5,000 failed plans are currently receiving pension benefits from the PBGC, and an additional 473,000 workers in failed plans are receiving benefits at retirement. You will receive it.
“The Employee Retirement Income Security Act of 1974 ceases to apply once the pension is no longer at risk.”
Sears, which has 90,000 beneficiaries, is among the companies that have terminated their pension plans and turned them over to the PBGC. United Airlines UAL,
In 2005, it had $7 billion in pension obligations. And Bethlehem Steel had a $3.7 billion retiree pension plan.
But somehow, corporate and insurance industry leaders have found a new loophole that strips retirees of ERISA and PBGC protections. If any of the large pension issuers were to suffer a financial crisis, tens of millions of older Americans would be exposed to extreme poverty.
See also: Is there a possibility that the pension system will be revived?
Financial failures to keep in mind
Let's not forget that in 2023, banks that were thought to be rock solid, Silicon Valley, Signature, First Republic FRCB, collapsed.
Lehman Brothers, Bear Stearns, and AIG AIG before collapsing.
It turned into dust. When these institutions collapse, it is often due to a lack of transparency, as well as well-known greed and unrecognized fraud, as happened with the Enron and Madoff Securities collapses.
From the archive (March 2023): How Silicon Valley banks collapsed in 36 hours
If the insurance company that currently holds the retiree's pension assets goes bankrupt, most states limit lifetime replacement payments to $300,000. If you are 72 years old and her annual pension is $30,000, in 10 years you and your spouse will be unhappy. With a pension of $50,000 a year, she only has 6 years left before she can find a job at her local fast food chain.
Of further concern is that insurers can and often do subsequently transfer both assets and liabilities to associated offshore entities or private equity partners. As a result, retirees' pension assets end up in the hands of unknown companies and managers, who are typically paid to protect their own short-term interests.
read: The Social Security crisis is a bipartisan outrage and is much worse than Lehman Brothers
I forgot my pension
These companies' influence and control over $4.5 trillion in retiree pension assets is exploding. Do they have the financial ability and fiduciary responsibility to continue making payments over the next 20 to 30 years of our lives?
That's why the 2022 Secure Act 2.0, a bipartisan federal law, is so important to all retirees today. We urge the U.S. Department of Labor to seriously evaluate the negative effects of pension stripping.
That's why I testified before the Department of Labor's ERISA Advisory Committee last summer. So should others.
I worked for 30 years to earn a pension. My interests are simple. I, and the millions of other retirees whose pension assets are already de-risked, need ERISA and PBCG protections, or something comparable. Secure 2.0 was passed to protect older Americans who need this protection.
See also: What is IBM doing about retirement plans? Why?
Older Americans have witnessed carelessness on Wall Street before, and we've seen passive compliance lead us down a bad path. It's time to avert the next crisis before it develops. It's time to end corporate legal avoidance designed to protect retirees from financial hardship.
Don Kaufman, born and raised in Philadelphia, is a nonprofit director. BellTel Retirement Association. An engineer and division manager at AT&T, he spent a combined 30 years at the company that eventually became his Verizon after antitrust regulators dismantled his system in 1984. Verizon separated his pension from the pensions of 41,000 of his fellow retirees in 2012..
This article is reprinted with permission NextAvenue.org©2024 Twin Cities Public Television, Inc. All rights reserved.
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