Allowing financial firms to buy out frozen defined benefit pension plans could benefit plan participants and the PBGC in some cases but also could pose key risks that might be difficult to anticipate and mitigate, said a GAO report released today.
A buyout of a plan that otherwise might be terminated would permit the Pension Benefit Guaranty Corp. to continue receiving premiums from the plan, according to the report, Defined Benefit Plans, Proposed Plan Buyouts by Financial Firms Pose Potential Risks and Benefits.
However, risks from buyouts included transferring plan responsibility to those that dont have an employment relationship with plan participants, raising concerns about its incentives to manage the plan in the interests of participants, the report said.
Even to the extent they are a successful model, buyouts could erode worker retirement benefits by encouraging plan freezes by sponsors wishing to avail themselves of this option, the Government Accountability Office report added.
The report was requested by House Ways and Means Committee Chairman Charles Rangel, D-N.Y., and other lawmakers.
An IRS revenue ruling in August 2008 held that the buyouts would violate agency regulations.