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PBGC Wants a Heads-Up on De-Risking

The nation’s private pension insurer wants a heads-up from employers about offers to participants to convert their monthly pensions to lump sum benefits.

In a recent Federal Register filing, the Pension Benefit Guaranty Corporation (PBGC) said it plans to revise the 2015 PBGC premium filing procedures to require reporting of such offers. According to a report in Business Insurance, those offers are typically are made to pension plan participants who have terminated employment but who have not yet begun receiving benefits.

In recent days, employers such as Motorola Solutions Inc. and Newell Rubbermaid Inc. have disclosed such offers, while dozens of other employers over the last few years have made similar offers.

These moves — typically referred to as “de-risking” because they serve to shift risk from the plan sponsor, who no longer has to worry about the potential investment and interest rate exposure for the benefits of those who opt for lump-sums, and are no longer covered by the plan. Moreover, employers can reduce certain fixed costs, such as the payment of PBGC premiums, on the lump-sum takers who are no longer covered by the plan.

As for the PBGC, the agency would no longer be on the hook to insure the benefits taken in lump sum form by participants — though they would, of course, stand to receive less in premium income.

As for the participants who opt for the lump sum — they must then make the decisions attendant with maintaining and/or converting that lump sum into retirement income.