As interest rates rise, so has interest in pension risktransfer (PRT)—and litigation.  Nevin & Fred take a look at what’s underlying (and undermining) that focus, aswell as a new suit alleging aggressive participant marketing.

Pension risk transfer is an aptly named process undertakenby an organization that wants to transfer its pension obligations to another entity, typically an insurance company. The process itself is a fiduciary decision requiring carefulconsideration of the entity to which those obligations are transferred—and therein lies the basis of a recent spate of litigation regarding those choices (and during a period of time in which PRT volumes have been setting records). 

For those not familiar with the underpinnings of the pensionrisk transfer (PRT—because we need another acronym), IB 95-1, issued by the Department of Labor in 1995 (in the wake of the Executive Life collapse), outlines the fiduciary standards to be used in selecting an annuity provider for a pension risk transfer. That includes considerations of the provider’s investment portfolio, size relative to the annuity contract, level of capital and surplus, liability exposure andavailability of state government guaranty associations.

In 2024, and in accordance with the provisions of the SECURE2.0 Act of 2022, the Labor Department basically concluded that while it was open to, and still considering, potential updates to Interpretive Bulletin 95-1, it felt that that document “continues to identify broad factors that are relevant to a fiduciary’s prudent and loyal evaluation of an annuity provider’s claims-paying ability and creditworthiness.” Additionally, EBSA found it “desirable for guidance in this area to remain principles based.” 

In this episode, Nevin (Adams) and Fred (Reish) talk about the trends and issues here.  They also look at a new lawsuit that brings up an old issue—a recordkeeper’s access toparticipants and alleged promotion of their offerings. 

Episode Resources:

Another Pension Plan Popped by Pension Risk Suit

Verizon Pension Risk Transfer Challenged in Court

Fiduciary Duty a Factor in Pension Risk Transfers

New ERISA Suit Alleges High Fees, Low Performance, Improper Forfeitures