Wyden, Harkin ask agencies to review impact of pension “de-risking” strategies

Senate Finance Committee Chairman Ron Wyden (D-OR) and Senate Health, Education, Labor, and Pensions (HELP) Committee Chairman Tom Harkin (D-IA) have requested that the Departments of Treasury and Labor, the Pension Benefit Guaranty Corporation (PBGC) and the Consumer Financial Protection Bureau (CFPB) establish clear and specific rules to ensure current employees and retirees participating in defined benefit pension plans have their interests protected. In an October 22, 2014 letter to the chiefs of each agency, the lawmakers said they were writing to “express their concerns about the impact of the new so-called “de-risking” strategies on the rights of workers and retirees in defined pension benefit plans.”

Wyden and Harkin said that, while employers undertake de-risking transactions to mitigate future pension funding risks, “it is our understanding that there are different ways of achieving these goals.” One strategy, called “liability driven investments,” has enabled employers to change a plan’s investment mix to insulate the company from market fluctuations while preserving the pension plan into the future: a “win-win” for employers and their employees and retirees, according to the letter. Their concern, however, is with new forms of de-risking that allow employers to off load their pension risks and liabilities, either to an outside company or on to individuals by offering lump-sum buyouts to retirees who are already receiving monthly benefits for life. The lawmakers called such actions “risky,” especially to those retirees on fixed incomes who cannot reenter the job market.

“As pension plans increasingly engage in de-risking, we are concerned by the lack of clear and specific rules to protect participants and retirees in these transactions,” Wyden and Harkin said. There are some 44 million workers and retirees covered by defined benefit pension plans. Wyden and Harkin said that, while some types of de-risking strategies may be warranted to mitigate future pension funding risks, pension plans are increasingly engaging in new forms of de-risking activity, such as off-loading risks and liabilities on to outside insurance companies or individuals through lump-sum buyouts.

“These strategies can pose risks to plan participants by removing vital federal protections and exposing individuals to the risks of managing a lump-sum on their own in retirement,” the lawmakers said. Wyden and Harkin urged the agencies to do whatever is necessary to ensure America’s current workers and retirees are adequately protected.

Source: Wyden/Harkin letter, October 22, 2014.