Lump-sum payments offered to defined-benefit plan participants and annuity purchases that sponsors make to offload pension liabilities to insurance companies will now have to be documented in annual Form 5500 filings.
Under the new rules, sought by the Pension Benefits Guaranty Corp., sponsors will be required to document de-risking activity from both the current and previous premium years.
The transactions warrant PBGC attention because they lower the participant count in plans, thereby reducing premiums sponsors pay, according to a statement that the PBGC submitted to the Office of Management and Budget rationalizing the new requirements.
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"Premium losses have the potential to degrade PBGC's ability to carry out its mandate to provide for the timely and uninterrupted payment of pension benefits," the PBGC's statement said.
PBGC acknowledged that premium increases "may be responsible for some portion of risk transfer activity."
In any case, for lump sums offered to terminated or retired workers, sponsors will have to report how many participants were offered the option, and how many accepted it.
For annuity purchases that transfer obligations for retirees' pensions to the books of insurers, the number of affected participants will also have to be reported.
Lump-sum buyouts or annuity purchases made within 60 days of Form 5500 filing will not have to be accounted for this year.
Companies that have taken the de-risking route in the past few years include GM,Ford and Kimberly-Clark.
Critics of the new reporting requirements suggest they only add to the regulatory burdens that ultimately threaten the voluntary offering of pensions in the private sector.
PBGC and others think those burdens are overstated.
Also read: PBGC premiums to rise under budget deal
"Because relatively few respondents will report risk-transfer events in any year, and because the information requested is so modest and so easy to report, there is no material burden associated with this (new) collection," said PBGC.
In 2014, $128 billion in pension obligations were transferred off sponsors' books through annuity purchases with insurance companies, the highest figure recorded to date, according to LIMRA's Secure Retirement Institute.
Total buyout contracts increased to 277 from 217 in 2013.
Along with higher PBGC premiums, low interest rates and increased mortality tables, both factors that increase pension liabilities, are also encouraging de-risking deals, according to analysts.
Nearly two-thirds of sponsors in a recent Aon Hewitt survey said they plan to take some action to de-risk pension obligations in 2015. Nearly half said they have already offered terminated employees a lump-sum buyout.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
