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Private Pensions: Protections for Retirees' Insurance Annuities Can Be Strengthened

HRD-93-29 Published: Mar 31, 1993. Publicly Released: Apr 22, 1993.
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Highlights

Pursuant to a congressional request, GAO reviewed the adequacy of protections for retirees' insurance annuities, focusing on: (1) state guarantee coverage of insurance annuities retirees receive from private pension plans; (2) federal regulation and oversight of private pension plans' selection of insurers to provide annuity benefits; and (3) options for improving annuity protections.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Labor To assist fiduciaries in complying with ERISA requirements, the Secretary of Labor should issue formal guidance that sets forth the Department's view of the procedures necessary to satisfy these requirements when selecting an annuity provider. The guidance should specify those factors fiduciaries should consider, at a minimum, in determining the suitability of prospective annuity providers. In light of coverage gaps in the state guarantee system, one factor should be the applicable state guarantee coverage provisions. Considering these provisions involves determining the state coverage plan participants would receive under different insurer-selection scenarios.
Closed – Implemented
In March 1995, the Department of Labor issued interpretive bulletin 95-1 regarding fiduciary standards that apply to annuity purchases.
Department of Labor The Secretary of Labor should require ongoing plans insured by PBGC to give participants who will receive insurance annuities: (1) advance notice of the identity of the insurer or insurers from which annuities may be purchased; (2) advance notice that PBGC coverage ceases upon the purchase of insurance annuities; and (3) detailed information about the state guarantee coverage of their annuities that applies at the time of annuity purchase. With regard to this last disclosure requirement, plan administrators should be required to inform participants: (1) of the name of the state guaranty association, if any, that guarantees their annuities and the amount of its annuity guarantee limit; and (2) that changing their state of residence may alter their coverage.
Closed – Implemented
Labor is continuing its broad review of ERISA reporting and disclosure provisions. It has determined that the most appropriate way to respond to the recommendation will be through legislative changes rather than through existing regulatory authority. However, Labor has deferred, for an indefinite period, any action on legislative initiatives.
Pension Benefit Guaranty Corporation In standard terminations in which insurance annuities are purchased, the Executive Director, PBGC, should require that plan administrators provide participants detailed information about the state guarantee coverage that applies at the time of annuity purchase. Plan administrators should be required to inform participants: (1) of the name of the state guaranty association, if any, that guarantees their annuities and the amount of its annuity guarantee limit; and (2) that changing their state of residence may alter their coverage.
Closed – Implemented
Final regulations implementing the recommendation were issued in the Federal Register (29 CFR Part 4041.27) on November 7, 1997.

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Topics

Employee retirement plansInsurance companiesRetireesInsurance lossesInsurance regulationPensionsRetirement benefitsSource selectionState lawState-administered programsWarranties