State Senator Tony Avella was joined Monday by several retirees at a press conference announcing legislation he will be introducing in the State Senate that would protect existing retirees whose pensions were sold off without advance notice via a method called “pension de-risking,” also known as pension stripping.
Pension stripping occurs when a company sells the pensions of its retirees, usually to an insurance company without the retirees’ permission. This has the effect of converting pensions into annuities, causing the retiree to lose federal Employee Retirement Income Security Act (ERISA) protections and federal Pension Benefit Guaranty Corporation (PBGC) insurance coverage.
Therefore, pension stripping removes the financial risk for corporations, but it transfers the burden of risk onto the shoulders of the pensioners.
“Retirees depend on their hard earned pensions and when companies go through the process of pension stripping, they are playing a risky game,” said Avella. “By leaving affected retirees with virtually none of the long standing federal pension protection mechanisms provided by ERISA and the PBGC, companies are shifting the burden of risk onto pensioners.”
This legislation would mandate that the state put in place pension protection mechanisms that ERISA and the PBGC had provided before the pension plans were transferred.
In 2012, Verizon sold off 41,000 management retirees to Prudential Insurance Company, many thousands of those impacted are New Yorkers. Retirees are fearful that if the purchaser or future buyers of their pension assets fail, they will be left out in the cold.
Eileen Lawrence, a Verizon retiree and Queens resident said, “It is outrageous that I devoted 37 years to have Verizon sell off my pension to bolster their bottom line,” said Queens resident Eileen Lawrece. “My fellow retirees and I once had pension protections, but no more.”
Jack Cohen, Executive Vice President of the 128,000 Association of BellTel Retirees said,
“I too was one of the 41,000 Verizon managers who had my pension moved to a Prudential group annuity contract,” said Jack Cohen, executive vice president of the 128,000 Association of BellTel Retirees. “This arbitrary decision was made without giving us any rights over what was being done with our retirement funds.”
Edward Stone, an expert on pension risk protection, said retirees relocating to other states after their pension is transferred to an annuity may unwittingly divest themselves of guaranty association coverage.
For example, annuitants living in New York have $500,000 of potential lifetime coverage, but could find themselves with just $100,000 of coverage after relocating to Arizona or eight other states or U.S. territories.
“I do not believe that the state guaranty safety net is sufficient to support an insolvency of a company as large as Prudential,” said Stone. “As we learned in the recent financial crisis, no company is too big to fail and Prudential, which purchased the Verizon pension liabilities, is no exception.”