The Department of Labor Monday published its long-awaited report on Interpretative Bulletin 95-1, which outlines the process the defined benefit plan fiduciaries must use when selecting an annuity provider to which the plan will transfer pension obligations. The report summarized meetings and discussions with stakeholders and concluded the DOL is “not prepared at this time to propose amendments to the Interpretive Bulletin” however, the report indicates that the department could consider changes to the bulletin warranted in the future. 

“[Employee Benefits Security Administration] has not concluded that changes to the Interpretive Bulletin are unwarranted,” the DOL wrote in the findings section of the 29-page report.

“Today’s report is the result of an extensive and thorough review, including more than 40 stakeholder meetings on this topic and input received through our consultation with the ERISA Advisory Council,” said Assistant Secretary for Employee Benefits Security Lisa M. Gomez. “We look forward to further exploration of the issues and concerns raised during the process, so that we can consider what next steps may be necessary to guide fiduciaries considering a pension risk transfer for their defined benefit pension plans, so that the fiduciaries can meet their obligations to participants and beneficiaries.”

IB 95-1 is a guidance document issued in 1995 by DOL that describes what fiduciaries operating under the Employee Retirement Income Security Act must consider when selecting an insurer as a pension risk transfer provider to be sure that the provider is safe one. The six criteria include:

1. The insurer’s investment portfolio
2. Size of the insurer relative to the size of the PRT contract
3. Level of insurer’s capital and surplus
4. Other lines of business of the insurer
5. Structure and guarantees of the contract
6. Additional protection offered by state-level guaranty associations

The report, required by Section 321 of the SECURE 2.0 Act of 2022, summarizes potential shortcomings of IB 95-1 that were identified by stakeholders in more than 40 meetings with the DOL in consultations with the ERISA Advisory Council last July, without making any recommendations itself.

Some of the key issues highlighted by stakeholders, DOL wrote, included private equity ownership of PRT providers, offshore reinsurance agreements, and administrative capacity. Pension risk transfer activity has been increasing in recent years as the funding levels of corporate pension funds as risen due to interest rates and investment performance.

The report read: “stakeholders had a global concern that private equity-owned insurers may not intend to be in the insurance business for the long term and, by definition, annuities are long-term commitments. These stakeholders questioned whether private equity firms would have policyholders’ interests at the forefront.”

Mark Unhoch, pension risk transfer practice leader at consulting firm October Three, says that the administrative capacity “should be part of IB 95-1.” Elements such as “customer service, checks coming on time, making changes online or elsewhere,” become critical services for an insurance company to offer when they take over a pension, and IB 95-1 as currently written is silent on whether a pension fiduciary should even consider it.

Congress in SECURE 2.0 required the report to be finished by December 29, 2023, 178 days ago. All the same, the report concludes: “Further exploration into developments in both the life insurance industry and in pension risk transfer practices is necessary to determine whether some of the Interpretive Bulletin’s factors need revision or supplementation and whether additional guidance should be developed.”