Provides protection to certain retirees from pension de-risking transactions

Summary of specific provisions

Section 1 of the bill amends the insurance law by adding a new section 3219-a relating to pension de-risking transactions with an annuity.

The new section requires that an annuity issued by an insurance company licensed to do business in New York State which sells an annuity intended to provide pension benefits to retirees of any company, corporation, limited liability company or association shall include:

1) mandatory disclosures, regulatory approval and an opportunity to challenge or opt out of any pension de-risking transaction that attempts to transfer retiree benefits from a federal Employee Retirement Income Security Act ("ERISA") protected plan to a substitute benefit provider not covered under ERISA;

2) supplemental protections in the form of a third party guarantee or reinsurance contract so as to equal the scope of coverage offered by the Pension Benefit Guaranty Corporation ("PBGC") after an annuity provider insolvency and subsequent determination of any shortfalls that might arise after New York Life and Health Insurance Guaranty Association ("NYLHIGA") contributions are determined so select retirees within a plan are not unfairly discriminated against;

3) provision of additional protections including mandatory disclosures by the transferring entity and the substitute pension benefit provider, uniform fiduciary standards and disclosures, uniform and equivalent protection from creditors and bankruptcy trustees;

4) allowing retirees receiving pension benefits the option to request a lump sum cash out option subject to certain mandatory disclosures regarding the tax consequences and dissipation risks associated with lump sum distributions and independent legal or financial advisor oversight;

5) all de-risking transactions must be vetted and approved by an independent third party created by and with the approval of the superintendent; and

6) all subsequent transfers of group annuity contracts must be vetted and approved by an independent third party created by and with the approval of the superintendent.

Section 2 sets forth an effective date one hundred and twenty days after it shall have become law and shall apply to all policies and contracts issued, renewed, altered, or amended on or after such date.

Justification

In recent years pension plan sponsors have utilized "annuity buy-outs" in the process of either completely terminating a pension plan or as a "de-risking" strategy which allows the plan sponsor to reduce the plan's liability by amending the plan and transferring certain employee pension plans into allocated group annuity contracts.

As a result of the annuity buy-out, the plan sponsor no longer pays a premium to the Pension Benefit Guaranty Association ("PBGC") and the monthly payments to retirees are no longer backed by the PBGC. In addition, ERISA fiduciary standards do not apply and ERISA no longer governs the benefits. These changes leave affected retirees with virtually none of the long standing federal pension protection mechanisms provided by ERISA and the PBGC that apply to employee benefit plans including mandatory disclosures in transfers between benefit providers, uniform fiduciary standards and disclosures, uniform and equivalent protection from creditors and bankruptcy trustees.

Arguments stating that ERISA protections remain are simply false and disingenuous. Therefore, it is necessary for the state to put in place pension protection mechanisms that ERISA and the PBGC had provided before the pension plans were transferred into allocated group annuity contracts. PRIOR LEGISLATIVE HISTORY:

None.

Fiscal implications

None to the state.

Effective date

This act shall take one hundred and twenty days after it shall have become law and shall apply to all policies and contracts issued, renewed, altered, or amended on or after such date.