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Senators want rules on corporate pension de-risking

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Senators want rules on corporate pension de-risking

The chairmen of two Senate committees are asking the heads of several federal agencies to develop guidance on one of the hottest defined benefit pension plan trends: employer moves to “de-risk” the plans.

In one de-risking approach, used by such major and well-known employers as Bristol-Myers Squibb Co., General Motors Co., Motorola Solutions Inc., and Verizon Communications Inc., employers have shifted their pension plan benefit obligations to insurers through the purchase of huge group annuities.

In another approach, employers have given certain pension plan participants the opportunity to convert their monthly annuity benefit to a cash-lump sum.

The approaches have been dubbed “de-risking” because plan sponsors no longer face such risks as having to put more money into the pension plans of affected participants if investment results on plan assets are less than expected or investment rates fall, inflating the value of plan liabilities.

But in a letter released Wednesday, Sen. Ron Wyden, D-Oregon, who chairs the Finance Committee, and Sen. Tom Harkin, D-Iowa, chairman of the Health, Education, Labor and Pensions Committee, wrote that when pension plan obligations are shifted to insurers, participants lose “vital” pension benefits protection, including insurance coverage provided by the federal Pension Benefit Guaranty Corp.

In addition, the senators noted, when participants accept offers to convert annuities to lump-sums, those individuals “must take on all the risks of investing the money to make it last over their lifetime.”

In their letter, the senators said regulators need to provide guidance to employers on how employers should disclose such transactions to the government and to plan participants.

In addition, the senators said it is “imperative” that regulatory agencies “consider clarifying all of the circumstances and conditions under which de-risking strategies are permissible in the absence of a formal plan termination.”

The letter was sent to Treasury Secretary Jacob Lew, Labor Secretary Thomas Perez, Acting PBGC Director Alice Maroni and Consumer Financial Protection Bureau Director Richard Cordray.

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