The private insurers in the group annuity market are taking paying pension guarantee customers away from the Pension Benefit Guaranty Corp. (PBGC)
Gene Dodaro, the comptroller general of the United States, talked, briefly, about the competition between the PBGC and the private “pension risk transfer” market Wednesday, at a hearing on financial security in retirement that was organized by the Senate Special Committee on Aging.
Dodaro was the only hearing witness who mentioned annuities in the written version of the testimonies posted on the committee website.
Dodaro — who serves as the head of the U.S. Government Accountability Office (GAO), an agency that helps Congress keep tabs on what’s happening at federal agencies and in federal programs — mentioned the private risk transfer market while discussing the challenges facing the PBGC.
The PBGC is an entity that’s supposed to use premiums from private employers with defined benefit pension plans, and the assets of failed plans, to back up pension plan benefits guarantees.
The PBGC has $110 billion in assets, but “its pension benefit guarantees are increasingly at risk due to its substantial liabilities,” Dodaro said, according to the written version of his remarks.
The PBGC reached Sept. 30, 2018 — the end of the federal government’s 2018 fiscal year — with a net accumulated financial deficit of about $51 billion, and about $185 billion in exposure to future losses on underfunded pension plans, Dodaro said.
Insurers and the PBGC’s Covered Lives
“The primary drivers of the government’s fiscal exposure related to PBGC’s deficit are the collective financial risk of the many underfunded pension plans insured by PBGC and the long-term decline in the number of participants covered by traditional [defined benefit] plans,” Dodaro said.
The number of plans insured has dropped by 78% since 1985, and the number of PBGC-insured pension plan participants who are still working has dropped by 13 million, Dodaro said.
“There has also been a recent trend of single-employer plan sponsors transferring the liability for some of their participants to insurance companies via group annuity ‘buy-outs,’” Dodaro said, referring to the arrangements also known as pension risk transfers.