The Pension Benefit Guaranty Corp. disclosed that it intends to require employers to report to the agency offers they make to pension fund participants to convert their monthly annuity to a cash lump-sum benefit.
In a filing published in Tuesday's Federal Register, the agency said it intends to revise 2015 PBGC premium filing procedures to require reporting of such offers, which typically are made to pension fund participants who have terminated employment but are not yet receiving benefits.
Such offers have become one of the biggest defined benefit plan trends.
This week alone, for example, three big employers — American Axle & Manufacturing Holdings Inc., Magnetek Inc. and Newell Rubbermaid Inc. — disclosed such offers, while dozens of other employers over the last few years have made similar offers.
A key appeal of this so-called derisking approach is that when pension fund participants take lump-sum benefits and are no longer covered by a plan, their former employers do not have to worry about how interest rate fluctuations and investment results could affect how much they will have to contribute to their plans to fund future annuity payments.
In addition, when participants take lump sums and move out of the pension fund, employers can reduce certain fixed costs, such as the payment of sharply rising PBGC premiums.
For the PBGC, the approach means its exposure to future losses is reduced since the pension funds it insures will have fewer participants. On the other hand, with fewer participants, employers will pay less in premiums to the PBGC, which the agency uses to help pay promised benefits to participants in failed plans the agency takes over.
