Under a new law, employees and pensioners might not have to prove they lost retirement benefits in order to sue their employer for neglecting its fiduciary duties when the plan sponsor shuts down its pension plan and buys insurance contracts or annuities instead.
The Pension Annuitants Retirement Protection Act extends federal pension law protection to workers and pensioners no longer covered by a pension plan because the sponsor has transferred its responsibilities to an insurance company.
Thus, workers and pensioners could sue their employer for a deterioration in the financial condition of the insurance company - even if the participants continue receiving their full promised benefits, says Dick Joss, resource actuary at The Wyatt Co., Washington.
That could happen, but is unlikely, says Russ Mueller, minority counsel with the House Education and Labor subcommittee. Although the law does not spell out the circumstances under which participants may sue their employers for fiduciary breaches, "presumably participants would not be too upset if there was not a loss of payment of their annuity," he says.
Not so, says Mr. Joss. "He doesn't know participants like I do."
What's more, because the law does not exclude fiduciary breaches before a certain date, participants might be able to sue their employers for annuities purchased years earlier. This is especially likely if the plan sponsor simply chose the low bidder and not necessarily the most financially secure provider.
So what should employers do?
If the insurance carrier's credit rating slips, it's not a bad idea for retirement plan sponsors to reassess the financial condition of the insurer that is responsible for paying out annuities, Mr. Joss advises.