Senate Finance Committee Chairman Ron Wyden, D-Ore., and Senate Health, Education, Labor and Pensions Committee Chairman Tom Harkin, D-Iowa, want federal regulators to set clear guidelines for employers undertaking pension derisking.
In a letter sent Wednesday to agency heads at the Department of Labor, Department of Treasury, Pension Benefit Guaranty Corp. and the Consumer Financial Protection Bureau, Messrs. Wyden and Harkin asked them to consider developing guidance on procedures and the fiduciary duties of plan sponsors.
“The risk to plan participants and the speed with which more and more companies are seeking to proceed with derisking” without specific guidance from regulators “raises the level of urgency,” the senators wrote.
While they recognized that some derisking strategies such as liability-driven investing can be “win-wins” for employers and employees, the senators focused on risk transfer to insurance companies and lump-sum offers. The insurance transfers remove plan participants from federal regulators’ protection and expose them to creditors, while the lump-sum offers also put participants at risk of adequate lifetime retirement income, they said. Employers’ “inherent conflicts of interest” is another concern.
The guidelines should include requiring advance notice to participants and the government, disclosure of the risks associated with annuities and lump sums, and new standards for choosing annuity providers, the senators said.
Calls to the committees regarding next steps were not returned at press time.