ACLI Concerned IB 95-1 Changes Will Cause ‘Chilling Effect’ on PRT Market

Department of Labor modifications to Interpretive Bulletin 95-1 could create “negative repercussions” for workers and retirees involved in pension risk transfers if they do not take into account industry concerns, members of the American Council of Life Insurers argued during a roundtable event Thursday that the report. 

Under the SECURE 2.0 Act of 2022, the DOL is required to review IB 95-1—which outlines the fiduciary standards for selecting an annuity provider for a pension risk transfer—and was supposed to have recommended possible modifications to Congress by the end of 2023. The delay has only heightened industry concern about changes that could, in their view, negatively impact the PRT market. 

“We are concerned the report might criticize the annuitization process whereby a defined benefit pension plan decides to send some of the pension payment obligations over to a state-licensed life insurance company,” said Preston Rutledge, a consultant to ACLI and a former assistant secretary of Labor for the Employee Benefits Security Administration. 

Rutledge argued that, instead of issuing new guidance, it would be better if a notice and comment rulemaking were published, as it would allow people to provide comments and possibly participate in a hearing before the DOL finalizes any regulation. Because IB 95-1 is guidance, it does not have to be publicized before it is issued in final form. 

“It would be very advisable for the department, if they’re going to make changes to [IB 95-1], to do it in a more public way where the public gets to weigh in on a proposal before it’s finalized,” Rutledge said. 

Howard Bard, vice ACLI president and principal deputy general counsel, said the DOL’s new guidance could have a “chilling effect” on employers considering PRT transactions. 

Rutledge explained that are typically two concerns for people who oppose the PRT process. One concern is that participants lose protections under ERISA and the Pension Benefit Guaranty Corporation when a PRT is conducted. When that happens, the participant leaves the federally protected pension plan, and their benefits are transferred to a state-regulated life insurance company. 

Another concern is that a life insurance company “may not be as solvent” or as trustworthy as a traditional pension plan.  

“Honestly, those comparisons seem strange to me, because both systems are excellent—the defined benefit system under federal law [and] the insurance system under state law,” Rutledge said. “If anything, the state system is stronger and more protected.” 

He also argued that there are benefit reductions built into federal law that federal insurance agencies are required to assess, but he says very little of that, if any, exists at the state level.  

Jillian Froment, ACLI’s executive vice president and general counsel, as well as a former Ohio insurance commissioner, argued that the purpose and mission of state insurance regulation is “ensuring consumer protection,” as well as overseeing the financial strength and stability of the insurance companies.   

“The life insurance industry regulation is based on preventing failures,” Froment said. “I would suggest that state-based insurance regulation is the best and strongest regulation in the world, and it’s actually been recognized by other jurisdictions as such.” 

Froment said the International Monetary Fund issued a report late last year that recognized the global leadership of the state-based regulatory system. 

However, several lawsuits have recently been filed calling into question the safety of participant retirement assets after employers conducted PRTs and offloaded pension liabilities to insurance companies. 

For example, former participants of AT&T Inc. filed a lawsuit against the company last month, alleging that shifting its pension responsibilities for 96,000 participants to Athene Annuity and Life Co. in a May 2023 PRT placed retirees in danger. AT&T has denied the allegations.   

Part of the reason the former participants accused Athene of being a “risky” insurance company was because 80% of Athene’s PRT liabilities are reinsured through offshore affiliates in Bermuda, owned by Athene’s parent, Apollo Global Management Inc. 

Mariana Gomez-Vock, ACLI’s senior vice president of policy and legal, said in the roundtable discussion that “Bermuda is a qualified reciprocal jurisdiction” and has been deemed as equivalent by the European Insurance and Occupational Pensions Authority. 

“What that means is that [Bermuda reinsurers] have been examined both by EIOPA and the U.S. and have been found to have a regime that meets the standard,” Gomez-Vock said. “There are very few equivalent jurisdictions; the U.S. is not even an equivalent jurisdiction. So that gives you a [sense] of the rigor that goes into these sorts of assessments.”  

She added that the Bermuda Monetary Authority has made significant regulatory changes over the last few years meant to reassure regulators across the world that Bermuda has strong regulations.  

“Whenever a company wants to do a cross-border reinsurance transaction into Bermuda, the BMA has said they will not approve those without checking with the domestic regulator first,” Gomez-Vock said.  

As of Thursday, the DOL’s recommendations for an update to IB 95-1 have yet to be published.