Retirement Security:

Insurance Company Failures Threaten Retirement Income

T-HRD-91-41: Published: Jun 27, 1991. Publicly Released: Jun 27, 1991.

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GAO discussed the impact of insurance company failures on pension plan incomes, focusing on what happens when pension plans purchase insurance annuities and invest funds through insurance companies. GAO noted that: (1) pension plans have purchased annuities for 3 million to 4 million retirees and have invested about a third of all pension assets with insurance companies; (2) between January 1975 and December 1990, 170 life insurance companies failed, with 40 percent of failures occurring during 1989 and 1990; (3) despite the presence of the Pension Benefit Guaranty Corporation (PBGC), which guarantees defined benefit plans but not defined contribution plans, and a network of state insurance guaranty associations, some pensioners risk losing some retirement income in the case of an insurance company insolvency; (4) pensioners are not always informed that, when pension plans purchase insurance company annuities, PBGC protection ends; (5) insurance guaranty laws among states varied in terms of coverage, limitations, and restrictions, exposing some pensioners to the risk of losing a portion of their annuity in the case of insurance company insolvency; (6) none of the state guaranty laws required maintenance of reserve funds, and the failure of a large insurance company could strain resources and result in delays in pension payments; (7) state guaranty associations generally did not cover investment losses experienced by defined benefit plans; and (8) PBGC determined that it lacked authority to guarantee annuities purchased from an insurance company to satisfy pension obligations to retirees.

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