DETROIT, MI – Companies in the United States have been shifting their pension obligations to insurers, lessening their own financial risk while leaving former employees to bear more of the burden. This trend, known as pension de-risking or pension stripping, has raised concerns about the potential impact on retirees nationwide.
Corporate de-risking involves transferring the responsibility for delivering retirement income promised by defined benefit pension plans to insurance providers, private equity funds, or other financial investors. This has been portrayed by corporations as a way to guard against fluctuating interest rates and market volatility that could impact balance sheet obligations.
However, there are growing concerns about the implications of this trend for retirees. General Motors and Verizon were among the first to initiate pension de-risking in 2012, setting a precedent for other companies to follow suit. As a result, millions of retirees have found themselves facing uncertain futures as their pension assets are being transferred to entities outside of the regulatory reach of the Employee Retirement Income Security Act of 1974 (ERISA) and the Pension Benefit Guaranty Corporation (PBGC).
The lack of regulatory oversight on insurance contracts, which are subject to state jurisdiction, means that retirees could be left exposed to financial instability if the institutions responsible for managing their pension assets were to run into trouble. While some argue that pension de-risking provides necessary safeguards for companies and their balance sheets, others worry about the potential long-term consequences for retirees who may see their pension assets being controlled by unfamiliar firms and managers focused on short-term profit.
The implications of pension de-risking have prompted calls for legislative action to protect the interests of retirees. The proposed Secure Act 2.0 seeks to evaluate the negative impacts of pension stripping and ensure that retirees have adequate protections in place. This has sparked a broader conversation about the need to address the potential vulnerabilities created by the shifting landscape of retirement benefits and the financial risks faced by retirees.