How secure is my private sector pension?

[ERD50]

I'll post the link with my comment next time. Sorry for the confusion.

• Retirees will receive monthly payments from Athene instead of the AT&T Pension Benefit Plan.
  
• However, in Q1 2020, Athene Holding reported a $1.1 billion loss, in part due to financial market turmoil, which raises questions about the risks involved in its investments.
  
• “This is what we’ve worried about — when companies sell off their pension plans,” said Karen Friedman, policy director at the Pension Rights Center, a nonprofit focusing on workers’ retirement security.
  
• Unlike pensions insured through the Pension Benefit Guaranty Corporation (PBGC), pensions taken over by private insurance companies such as Athene are no longer backed by the PBGC and are instead backed by the insurers themselves.
  
• Furthermore, insurers are regulated by individual states, not the federal government, and some are affiliated with private equity firms whose short-term profit focus can conflict with the long-term obligations of the pension plans.

https://www.theretirementgroup.com/blog/atts-retiree-pension-payments-taken-over-by-athene

OK, thank you. Surprising to me, and very interesting and a bit disconcerting. But it appears that in these cases, the PBGC is looking at the state guarantee as being as good as the PBGC guarantee (yes, that's debatable).

However, it does seem to be a pretty rare case, as I read it, the pension must be fully funded for the PBGC to allow this sort of transfer:

https://www.pbgc.gov/about/pg/other/how-pension-plans-end

The employer can end the plan in a standard termination but only after showing PBGC that the plan has enough money to pay all benefits owed to participants. The plan must either purchase an annuity from an insurance company (which will provide you with lifetime benefits when you retire) or, if your plan allows, issue one lump-sum payment that covers your entire benefit. Before purchasing your annuity, your plan administrator must give you an advance notice that identifies the insurance company (or companies) that your employer may select to provide the annuity. PBGC's guarantee ends when your employer purchases your annuity or gives you the lump-sum payment. A state guaranty association may insure all or part of your annuity in such a case.

If the plan is not fully funded, the employer may apply for a distress termination if the employer is in financial distress. To do so, however, the employer must prove to a bankruptcy court or to PBGC that the employer cannot remain in business unless the plan is terminated. If the application is granted, PBGC will take over the plan as trustee and pay plan benefits, up to the legal limits, using plan assets and PBGC guarantee funds.

edit/add: oooops, I see few others provided similar info that I did not see before I posted... and, I went back and caught my earlier post in time to edit it and reference this information.

-ERD50

 

[foxcreek9]

Inflation is a far bigger risk, my 2016 pension is now worth 77% of its original value.

 

[pb4uski]

I'll post the link with my comment next time. Sorry for the confusion.

• Retirees will receive monthly payments from Athene instead of the AT&T Pension Benefit Plan.
  
• However, in Q1 2020, Athene Holding reported a $1.1 billion loss, in part due to financial market turmoil, which raises questions about the risks involved in its investments.
  
• “This is what we’ve worried about — when companies sell off their pension plans,” said Karen Friedman, policy director at the Pension Rights Center, a nonprofit focusing on workers’ retirement security.
  
• Unlike pensions insured through the Pension Benefit Guaranty Corporation (PBGC), pensions taken over by private insurance companies such as Athene are no longer backed by the PBGC and are instead backed by the insurers themselves.
  
• Furthermore, insurers are regulated by individual states, not the federal government, and some are affiliated with private equity firms whose short-term profit focus can conflict with the long-term obligations of the pension plans.

From the horse's mouth. Note that as I said inost #12, the insurers that assumed the pension obligations are US domiciled insurance companies that are regulated by the state insurance regulators for their respetive states of domicile. So the only way pensioners would be harmed is if their respective US domiciled insurer went through their assets backing reserves and their surplus and the state guaranty fund did not pay... IMO a lesser likelihood than the pension plan and the PBGC running out of money... but in both cases extremely unlikely.

Item 8.01 Other Events.

On April 26, 2023, AT&T Inc. (AT&T) and State Street Global Advisors Trust Company, as independent fiduciary of the AT&T Pension Benefit Plan (Plan), entered into a commitment agreement with subsidiaries of Athene Holding Ltd. (Athene) under which AT&T agreed to purchase nonparticipating single premium group annuity contracts that would transfer to Athene certain of the Plan's defined benefit pension obligations related to certain retirees, participants and beneficiaries under the Plan.

The purchase of the group annuity contracts closed on May 3, 2023. The contracts cover approximately 96,000 AT&T participants and beneficiaries (Transferred Participants). Under the group annuity contracts, Athene, through its wholly-owned subsidiaries Athene Annuity and Life Company and Athene Annuity & Life Assurance Company of New York, made an irrevocable commitment, and will be solely responsible, to pay the pension benefits of each Transferred Participant beginning with their August 2023 pension payments. The transaction does not change the amount of pension benefits payable to the Transferred Participants.

The purchase of the group annuity contracts was funded directly by assets of the Plan via the pension trust underlying the Plan and required no cash or asset contributions by AT&T. As a result of the transaction, AT&T expects to recognize a one-time non-cash pre-tax pension settlement gain of approximately $350 million in the second quarter of 2023. The actual impact will depend on finalization of the actuarial and other assumptions. AT&T transferred approximately $8,050 million of benefit obligation and related plan assets upon close of the transaction and the funded status of the Plan did not change due to the transaction.

 

[ShadowBloom]

How do you know if your pension is well-funded? I get the annual statement from my former employer giving a funding percentage (actually, two, since there's some kind of adjusted number as well), but what percent is considered good?

 

[freedomatlast]

Why spend time worrying about something when you can't you can't change it, or affect it in any way?

 

[LateToFIRE]

Why spend time worrying about something when you can't you can't change it, or affect it in any way?

Kinda my sentiments as well. I could see how an assessment of pension risk might impact savings and/or timing for FIRE. For example, if your employer were teetering on Chap 11 and pension way underfunded, you might want to save more and work longer. But, once you're in retirement, not much else you could do to change the situation except maybe don't blow so much dough.

 

[badatmath]

My wife and I megacorp offers retiree healthcare up to age 65 and HRA starting at age 65. Haven't retired yet. But I hope these benefits don't get cut.

Mine does this. I am not overly worried they will be cut because they have already planned for the to fade out over time (not offered to new hires). Still, if they do nothing I can do about it.

I didn't have the option to work there longer when they sent my job to India.

 

[pb4uski]

Why spend time worrying about something when you can't you can't change it, or affect it in any way?

+1 Especially since in most cases the chance of a problem is very remote.

 

[marko]

My former company was acquired and later sold and acquired again by a third outfit. Along with a lot of other high pension people at the time, I took a cash option...very high six figures...almost seven.

Hearsay: Because so many high pension folk took the cash option there wasn't enough money left to fully fund the pension and those left were given a percentage of their full pension.

Is that possible?? I have no idea if it's true.

 

[pb4uski]

^^^ Doesn't sound right to me but pensions are complicated. Usually lump sums benefit the plan in that they are typically less than the benefit obligation.

 

[youbet]

Inflation is a far bigger risk,

Absolutely!

 

[jazz4cash]

Why spend time worrying about something when you can't you can't change it, or affect it in any way?

Harumpf. That’s mostly what we do here.

 

[punkinhead]

Why spend time worrying about something when you can't you can't change it, or affect it in any way?

Because you can assume the worst and max out your 401K/IRA/taxable accounts. I worked for a Megacorp that promised retiree health insurance and a pension so a large proportion of people didn't save or saved at a very low rate. A 2007 bankruptcy meant the retiree health insurance program was eliminated and the pension turned over to the PBGC. Obviously company contributions ended when the PBGC got it so every employee's years of vesting was frozen. You may have been planning to get X at retirement but will now get 0.3X or less. And a lot of people had planned for the "30 and out" which would have let them retire in their early 50's. Those plans evaporated and a lot of my old coworkers will work until they die.

Those of us who never counted on the pension and saved are in much better shape than those who didn't.

 

[statsman]

How secure is it when your pension is sold to an annuity provider like Athene that is headquartered in Bermuda? You quickly lose PBGC protection and then it's up to the state you live in to protect you.

I'm in that boat with Athene, and in my reading of the literature, it falls back to state insurance in case Athene fails. In most states, that's up to $250,000 in the annuity's present value (as it is in Texas). I can tell you that, despite having a rather modest pension myself, that $250,000 won't purchase a suitable annuity as replacement.

 

[PandaBear]

I'm in that boat with Athene, and in my reading of the literature, it falls back to state insurance in case Athene fails. In most states, that's up to $250,000 in the annuity's present value (as it is in Texas). I can tell you that, despite having a rather modest pension myself, that $250,000 won't purchase a suitable annuity as replacement.

Not sure I’ll sleep well tonight after reading this thread, as dh’s pension has also been sold to Athene.

How do I find how much CA would “guarantee” his pension? Meaning the state insurance?

 

[GhostofTomJoad]

My traditional pension is with a non-profit, a Christian denomination. Designed to rise with inflation, and if the denom's investments do well in a given year, we get a bit more. It's put together to be perpetual, by design. I guess I'm one of the lucky ones. Surviving spouse will get 50% of it until SHE dies--- plus the yearly raises. And $10,000 death benefit.

 

[Al18]

Life and health guarantee association, listed by state https://www.annuityadvantage.com/resources/state-guaranty-associations/

 

[LateToFIRE]

My former company was acquired and later sold and acquired again by a third outfit. Along with a lot of other high pension people at the time, I took a cash option...very high six figures...almost seven.

Hearsay: Because so many high pension folk took the cash option there wasn't enough money left to fully fund the pension and those left were given a percentage of their full pension.

Is that possible?? I have no idea if it's true.

It is possible. There are many ways to structure sale of a business - for example the transaction may have been an asset purchase (rather than a purchase of the stock) such that certain liabilities (like a pension plan) would not necessarily travel to the acquirer. Sounds like your company started winding down the plan before the acquisition (when you cashed out) and then remaining beneficiaries were stranded with an underfunded plan that was modified or terminated when the sale closed. Complicated stuff for sure.

 

[pb4uski]

Not sure I’ll sleep well tonight after reading this thread, as dh’s pension has also been sold to Athene.

How do I find how much CA would “guarantee” his pension? Meaning the state insurance?

Do y'all realize that you are concerned over an A/A+ rated issuer?

...Financial strength ratings for Athene Annuity & Life Assurance Company, Athene Annuity and Life Company, Athene Annuity & Life Assurance Company of New York and Athene Life Re Ltd. S&P, Fitch, A.M. Best and Moody’s credit ratings reflect their assessment of the relative ability of an insurer to meet its ongoing insurance policy and contract obligations. S&P rating as of December 2022 (A+, 5th highest out of 21), Fitch rating as of September 2023 (A+, 5th highest of 19), A.M. Best rating as of May 2023 (A, 3rd highest of 16) and Moody’s rating as of July 2023 (A1, 5th highest of 21).

 

[bigriver]

So a company I worked for 25ish years ago did a pension buyout about 10 years ago. Last year they said they are terminating the pension. I have till the end of the month to 1) take a low lump sum, 30% more than the first buyout 2) take early pension at 57, which is now, at 50% or 3) do nothing and get normal pension at 65. Any pension will be transferred to an annuity. Running the numbers they will have to pay more than the lump sum for either annuity. I look at it as free money. But running numbers I’ll gamble and take pension at 65. If I retire somewhere, some states tax pensions, but hey my family is over 88, so I think I come out better

 

[DaveLeeNC]

From the horse's mouth. Note that as I said inost #12, the insurers that assumed the pension obligations are US domiciled insurance companies that are regulated by the state insurance regulators for their respetive states of domicile. So the only way pensioners would be harmed is if their respective US domiciled insurer went through their assets backing reserves and their surplus and the state guaranty fund did not pay... IMO a lesser likelihood than the pension plan and the PBGC running out of money... but in both cases extremely unlikely.

Correct me if I am wrong here, but there is no "state guaranty fund". There is a state guaranty association that, if something happens to your annuity, they will try to do something about it (with limitations).

My mega corp pension was recently transferred to two LARGE insurance companies. If things got so bad that these two companies could not cover their annuity obligations, I seriously doubt that the state guaranty association would be in any shape to help much. I view the existence of these organizations as a (small) risk to my annuity (pension). If things got so bad that my annuity could not be paid, it is obvious that lesser funded insurance companies will have already failed and my insurance company would have already had to step in and save them (leaving them in a worse position).

Unlikely but ....

dave

 

[Bigbass]

But according to the email I received on 5/3/23 from AT&T, I can have confidence that this move is a win-win...you think they would lie to me!?? I'm so glad I took 60% of my pension as a lump sum and only about 40% as an annuity. I'm turning 65 next year, just as they eliminated the $2,700 HRA for me. Oh well, at least my husband received $1,500 for about 6 years.

Dear AT&T retiree —

As a retiree, you’re probably aware that AT&T is focused on becoming the nation’s leading 5G and broadband provider. This focus is consistent with our legacy as one of the world’s leading communications providers, a legacy you supported with your service to the company. In recognition of that service, the leadership team is committed to preserving the most important and significant benefits to our retirees, despite an increasingly challenging and competitive environment.

For decades, we’ve worked hard to safeguard and fully fund our pension obligations. With the plan in good standing, we’re looking at options to further care for these important assets and give you greater peace of mind about your pension payment.

One option available today is to work with a respected financial institution that provides pension funds for other Fortune 100 companies. These financial institutions are experts in this field, with a central focus on managing pension assets for maximum returns and safety.

For this reason, and after a detailed review, we’ve elected to transfer the assets and liabilities associated with your pension to an expert in this field, Athene.

Athene is a highly-rated insurance company that manages annuity payments as part of their core business. They’re experts in what they do, and they do it well. For AT&T, this model is more cost effective and will simplify the administration.

What does that mean for you? Beginning with your August pension payment, you’ll receive monthly payments from Athene instead of the AT&T Pension Benefit Plan. This change does not affect the amount of your monthly pension payment. Your monthly payment will be in the same amount and generally paid under the same terms as the benefit you currently receive.

You don’t need to take any action right now. In July, Athene will send you a welcome kit and will ask you to review your personal information. They’ll provide instructions on how to make any changes, if needed.

We know that the AT&T Pension Benefit Plan provides an important source of retirement income for thousands of individuals, and you can have confidence that this move is a win-win. You’ll be supported in your retirement by an expert in the field, as AT&T focuses on being the best connectivity provider.

We’ve included a brief Q&A below to help answer some of your questions. You can also visit go.att.com/pensiontransfer for more information. If you have any further questions right now, please contact the Fidelity Service Center at 1-866-956-3115. Athene will be in touch with you in July.

Thank you for all you’ve done for AT&T.

AT&T Benefits

 

[pb4uski]

Correct me if I am wrong here, but there is no "state guaranty fund". There is a state guaranty association that, if something happens to your annuity, they will try to do something about it (with limitations).



My mega corp pension was recently transferred to two LARGE insurance companies. If things got so bad that these two companies could not cover their annuity obligations, I seriously doubt that the state guaranty association would be in any shape to help much. I view the existence of these organizations as a (small) risk to my annuity (pension). If things got so bad that my annuity could not be paid, it is obvious that lesser funded insurance companies will have already failed and my insurance company would have already had to step in and save them (leaving them in a worse position).



Unlikely but ....



dave

Picking nits there dave. According to Bard:

What is the difference between a state guaranty association and a state guaranty fund?

State guaranty associations (SGAs) and state guaranty funds are both non-profit organizations that provide financial protection to policyholders in the event that their insurance company becomes insolvent. However, there are some key differences between the two.

SGAs are typically created by state law and are funded by assessments on member insurance companies. Membership in an SGA is mandatory for all licensed insurance companies in the state. SGAs are responsible for covering covered claims of policyholders of insolvent insurance companies up to statutory limits.

State guaranty funds are typically created by state law or regulation and are funded by a combination of assessments on member insurance companies and state appropriations. Membership in a state guaranty fund is not always mandatory, but it is common for insurance companies to be members. State guaranty funds typically cover a wider range of insurance products than SGAs, including property and casualty insurance.

Also, with today's regulatory surveillance it is very unlikely that any significant company would end up unable to pay claims... they would have to blow through both reserves and surplus before state guaranty associations would even come into play.

 

[SM4456]

How secure is it when your pension is sold to an annuity provider like Athene that is headquartered in Bermuda? You quickly lose PBGC protection and then it's up to the state you live in to protect you.

Yes, I was very surprise that I received a letter that has of August 2023 that my pension transferred to Athene Annuity. So yes, it can happen.

 

[iloveyoga]

I worked with DB plans for 30 plus years, including the PBGC and plant shutdowns. I have been away from it for 10 years or so and I have to say I don't miss it at all. We answered so many questions similar to this one and as you can see there are many nuances to the answer.