Lockheed Martin Corp. made headlines at the end of January when it announced plans to shift retiree pensions to annuities offered by a life insurer. In doing so, it joins an expanding list of companies, including FedEx Corp., Raytheon Co. and Alcoa Corp., that have transferred billions of dollars in liabilities to an insurer.
These transfers allow companies to focus on their core businesses. At the same time, they let life insurers do what they do best — provide solutions that manage long-term risk and protect consumers' retirement security.
While pension risk transfers shift obligations to an insurance company from an employer, they don't change the benefits retirees receive; that's because annuities, like traditional pension plans, provide guaranteed payments for life.
Critics of these deals, however, point to what they believe is an Achilles' heel: Corporate pension plans are governed by federal law, while insurance and annuities fall under state regulation. Surely, the critics complain, the hard-earned retirement benefits of America's workers are safer with Washington as the cop on the beat. Really?
Actually, they are not. The state regulatory system that oversees annuities and the life insurers that issue them impose a higher level of regulatory and solvency scrutiny than the federal regulations governing pension plans.
The National Organization of Life and Health Insurance Guaranty Associations, whose members protect policyholders in insurer insolvencies, said it best in a 2016 report: "Even though both (the state and federal) systems focus on payer solvency, (state) insurance regulation generally holds life insurance companies to stricter financial standards and more intensive oversight than are applied by pension regulation to single-employer pension plans."