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.

Section (a) of the bill sets forth definitions of "employer", "employee pension benefit plan" and "pension de-risking transaction".

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 the following provisions:

(b) (1) a clear statement that payments to annuitants under an annuity contract issued pursuant to this section are exempt from the claims of creditors;

(b)(2) a statement that the retirees will no longer have protection under ER1SA and the PBGC;

(b)(3) the identity and contact information for the New York Life and Health Insurance Guaranty Association, or any substitute or replacement guaranty association that provides coverage to annuitants residing in New York in the event of the insurer's financial impairment or insolvency, as set forth on a publicly available website such as the website maintained by the Life Insurance Company Guaranty Corporation of New York (www.nylifega.org); and

(b)(4) mandatory annual disclosures to all retires whose benefits are transferred to an insurance company or alternative benefit provider for the purpose of providing retirement benefits, of the following: funding levels of all assets relative to expected liabilities under the assumed pension benefit schedules, investment performance summary by asset class, investment performance detail by asset class, expenses associated with any group annuity contract, changes in actuarial assumptions, if any.

(c) prohibits transfer or assumption to another insurer without confirmation by the superintendent that the insurer assuming the obligations of such allocated or unallocated group annuity contract has the financial strength to fulfill its obligations under such contract.

(d) the proceeds of any such allocated or unallocated group annuity contract issued shall be exempt from application to the satisfaction of money judgments under section fifty-two hundred give of the CPLR.

Section 2 of the bill amends paragraph 2 of subdivision (1) of section 5205 of the CPLR, as amended by chapter 24 of the laws of 2009, by adding that "Statutorily exempt payments" shall specifically include any annuity proceeds whose benefits are transferred to an insurance company or alternative benefit provider for the purpose of providing retirement benefits pursuant to section three thousand two hundred nineteen-a of the insurance law in a pension de-risking transfer.

Section 3 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 effect 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.