Imagine opening your mailbox and finding a letter that says the company you worked for all those years no longer pays your pension. An insurance company you’ve never heard of does.
You didn’t agree to it. You didn’t get a vote. And it’s perfectly legal.
It’s called a pension risk transfer, and it’s big business. Employers moved $31.3 billion in pension obligations to insurers through buyouts in 2025, according to LIMRA, the insurance industry’s research group. Pension deals that year covered more than 740,000 people.
Some of America’s biggest employers have done it. AT&T moved about $8 billion in pension obligations covering roughly 96,000 people to Athene Annuity and Life in 2023, according to the trade publication PLANSPONSOR. IBM shifted $16 billion to Prudential and MetLife in 2022.
Why do companies do it? A pension is a huge, unpredictable promise sitting on the books for decades. Handing it to an insurer gets rid of that risk, along with the cost of running the plan.
I’ve been a CPA since 1981, and I spent 10 years as a Wall Street investment advisor, so let me tell you what really changes when your pension moves, and what doesn’t.
What usually doesn’t change is the amount of your check. The insurer buys an annuity designed to keep paying what you were promised.
What does change is the safety net underneath it.
What you lose: The federal guarantee
While your pension sits in your employer’s plan, it’s backed by the Pension Benefit Guaranty Corporation, a federal agency. If the plan fails, the PBGC steps in and pays basic benefits up to a limit.
For plans ending in 2026, that’s up to $7,789.77 a month for a 65-year-old taking a single-life annuity.
This happened to me when Lehman Brothers went out of business during the Great Recession. The Pension Benefit Guaranty Corporation now pays my monthly pension. (It’s significantly less than the monthly max.)
But the PBGC says its guarantee ends once your employer buys an annuity for you. From then on, your backstop is your state’s life and health insurance guaranty association.
Every state has one, and each protects at least $250,000 in present value of annuity benefits per person if an insurer fails, according to a report from NOLHGA, the associations’ national organization.
Some states go higher. New Jersey covers up to $500,000 for annuities already paying out, and Florida and Georgia cover $300,000.
That’s a patchwork of state protection, not a federal promise. And $250,000 isn’t as much as it sounds like.
Here’s the math. At a 5% discount rate, 20 years of $3,000 monthly checks is worth about $455,000 today. That’s far more than a $250,000 cap. If an insurer failed, anything above your state’s limit would depend on what could be recovered from the insurer’s remaining assets.
Now, here’s some perspective. NOLHGA says no insurer with pension transfer obligations has failed since the 1990s. In the one failure it cites, Executive Life, pension annuitants recovered 86% of what they’d been promised, according to a 2008 California audit.
Regulators are watching, though. In a 2024 report to Congress, the U.S. Department of Labor said it should keep studying developments in these deals, including private equity ownership of insurers, riskier investments and the use of reinsurance.
Retirees have tried suing, too, mostly without success so far. In the AT&T case, a federal magistrate judge this month recommended tossing most of the retirees’ claims, according to PLANADVISER.
So what should you do if your pension is moving? Here are five moves.
1. Read the notice, and keep it
You’ll get a letter telling you who your new insurer is and when the change takes effect. Don’t toss it.
Check that your monthly amount, your payment start date and any survivor benefit for your spouse match what your plan promised. Then file that letter with your most recent pension statement. If there’s ever a dispute, that paper trail is your proof.
2. Look up your state’s guaranty limit
Guaranty protection generally depends on where you live, not where your old employer is. If you retire to another state, your coverage limit can change with you.
Start with NOLHGA’s page on how you’re protected, then check with your state insurance department for your exact limit.
3. Size your pension against the cap
This is the step almost nobody takes, and it’s where a calculator beats a hunch.
Multiply your monthly check by 12, then by the number of years you reasonably expect to collect. Then knock it down to today’s dollars. An online present-value calculator will do it in seconds.
If the answer lands well under your state’s limit, you’re in good shape. If it’s well over, you’re relying more on the insurer’s health, which makes the next step matter more.
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4. Check out the insurer
You didn’t pick this company, but you can still vet it.
The National Association of Insurance Commissioners runs a free Consumer Insurance Search where you can look up an insurer by name. Credit rating firms such as AM Best and S&P also rate insurers’ financial strength.
If your insurer is highly rated and your pension is under your state’s cap, you can probably relax. If not, keep an eye on it.
5. If you’re offered a lump sum instead, think twice
Some companies offer retirees a choice: Take the annuity, or take your money in one check.
A lump sum can be tempting. But the Consumer Financial Protection Bureau notes that lifetime monthly payments sharply reduce the risk of outliving your money, and buying a similar annuity on your own usually costs more than the one your plan offers.
If you do take the cash, roll it directly into an IRA or another retirement account. Done right, that can spare you the 10% early-withdrawal penalty and keeps income taxes deferred.
This is a one-time decision you can’t undo, so it’s worth running past a pro. If you don’t have one, you can find a financial advisor here.
The bigger threat: inflation
Here’s what I’d actually lose sleep over. It isn’t the insurer. It’s the calendar.
Private-sector pensions historically haven’t come with automatic cost-of-living raises. A Bureau of Labor Statistics comparison found only 4% of private-sector pension participants had them in the mid-1990s, versus more than half in the public sector.
At 3% inflation, a $2,000 monthly check buys what about $1,107 does today after 20 years. Same check, 45% less buying power.
So whoever ends up writing your pension check, build the rest of your plan — Social Security, savings, investments — to keep up with rising prices. If you’re weighing an annuity to fill the gap, here are seven things to know before you buy.
Read the full article here