AT&T’s Pension Plan “De-risking”

NRLN Is Lobbying for Legislation to

Protect Pension Plan Participants

 

The action that AT&T has taken is known as pension plan “de-risking”, the removal of participants of a pension plan through the purchase of an insurance company annuity. While de-risking causes pension plan participants to lose the protection of the Employee Retirement Income Security Act (ERISA) and the Pension Benefit Guaranty Corporation, it is currently allowed under ERISA.

 

It is disappointing that AT&T chose not to purchase reinsurance to protect its 96,000 pension plan participants should Athene fail. The largest “de-risking” that has happened in the U.S. was in 2012

when General Motor’s transferred $29 billion to Prudential for annuities to replace its salaried pension plan. GM did not purchase reinsurance, but they at least required that Prudential maintain a separate sub-account for GM assets transferred which provided GM retirees with added security.

 

Reinsurance is a key element of the NRLN’s proposed solution and draft statute we are lobbying for with Congressional leaders to protect pension plan participants when “de-risking” happens. The NRLN has teamed with the Pension Rights Center (PRC) to gain legislation that requires parties for an annuitization to reinsure annuities. This would be a legally binding agreement to follow the assets and therefore would apply to successor firms. This would protect plan participants. It would apply to all defined benefit pension plans under ERISA.

 

We are comparing the 2012 with 2022 pension plan financials for all NRLN organizations. Monte sent me AT&T’s latest 2022 plan-year Annual Funding Notice (AFN) requesting quick service. Total plan participants were 411,165, down 68% from 602,000 in 2012, Those active (on-roll) dropped to 120,000 reflecting in part the mergers of CenturyLink, Quest and Embark plan participants – the 2023 annuitization of 96,000 will reduce total participants to about 315,000. To measure performance the NRLN focuses on three funding measurements: (a) the more conservative Pension Protection Act of 2006 (PPA) view of interest rates – AT&T’s 2023 AFN for the 2022 plan year shows a 70% PPA funding level, down 13.3% from 83.3% in 2012 on a net asset basis, but on a total asset basis PPA funding was 83.4%, down just 2.6% from 2012, (b) Fair Market Value (FMV) basis or market values of assets vs liabilities on 12-31 of the plan year – AT&T’s AFN reported 94.7% for 2022, up 17.7% from 2012; and (c) we calculate an estimate of what the PBGC would value the plan applying a conservative annuity market interest rate to discount liabilities – this would be 79% for 2022, up 14.9% from 2012.

 

Considering the PPA 83.5% (total asset basis), FMV 94.7% and PBGC 79%, what should we believe? On 12-31-2022 we can approximate funding of 85% plus but… we have several questions about liability discount rates applied. AT&Ts plan asset portfolio includes 17% in domestic and 5% in foreign equities, 15% in real estate, and 27% in “Alternative Investments” – downside risk?.

 

We will update Monte and you and lobby to get our reinsurance proposal passed by Congress.

 

Bill Kadereit, President

National Retiree Legislative Network