DOL leaves DB pension risk transfer guidance unchanged … for now 

July 9, 2024

The Department of Labor (DOL) has delivered a report to Congress on pension risk transfers (PRTs) in defined benefit (DB) plans. The report fulfills a mandate in the SECURE 2.0 Act of 2022 (Div. T of Pub. L. No. 117-328) for DOL to review its current PRT guidance in light of developments in the annuity provider marketplace. That guidance explains how ERISA’s fiduciary standards apply to the selection of an annuity provider when a DB plan sponsor decides to outsource some or all of its pension risk. DOL isn’t recommending any changes to its PRT guidance at the moment but will continue to study several key issues, with an eye toward potential future amendments.

Current PRT guidance. Selecting an annuity provider for a PRT is a fiduciary decision subject to ERISA’s standards of prudence and loyalty. DOL’s long-standing PRT guidance in Interpretive Bulletin (IB) 95-1 (29 CFR § 2509.95-1) explains that a plan fiduciary generally must choose the “safest annuity available.” The IB advises fiduciaries to conduct an “objective, thorough and analytical search” and identifies six factors to consider in assessing an annuity provider’s creditworthiness and ability to pay benefits. Those factors include the quality and diversification of the provider’s investment portfolio and the availability of additional protections through state guaranty associations. The IB also requires fiduciaries to obtain the advice of a qualified, independent expert if they don’t possess the expertise to make the evaluation or have conflicts of interest due to their relationship with the sponsor.

Background for mandated review. Against the backdrop of a steady increase in PRT activity in recent years, some policymakers have grown concerned about the continued security of pension benefits, given the lack of Pension Benefit Guaranty Corp. (PBGC) protection for benefits transferred to an annuity provider. Policymakers have been particularly concerned whether participants face increased risks from PRTs involving annuity providers with nontraditional ownership structures — such as ones owned by private equity companies — or that reinsure PRT obligations offshore (typically in Bermuda). SECURE 2.0 set a deadline of Dec. 29, 2023, for DOL to review the IB in consultation with the ERISA Advisory Council, determine whether amendments are warranted, then report those findings to Congress, along with an assessment of whether participants’ benefits may be at risk.

Result of review. DOL’s report to Congress reflects input from the ERISA Advisory Council and more than 40 meetings with diverse stakeholders. The report acknowledges a baker’s dozen areas of potential concern — including ownership structures, nontraditional investments and disclosures to remaining plan participants after a partial PRT. However, DOL remains noncommittal about amending the IB, stating that the agency “has not concluded that changes … are unwarranted.” The agency believes the IB continues to identify relevant factors for fiduciaries to evaluate annuity providers and should remain principles-based rather than prescriptive. DOL plans to continue researching what amendments or additional guidance may be called for in the future. To avoid any unintended consequences and obtain broader public input, DOL intends that future revisions to the IB will go through a formal notice-and-comment process but has not provided any anticipated timeline.

Wave of new PRT lawsuits. The report comes amid a series of lawsuits filed in 2024 against DB sponsors that have undertaken PRTs with Athene, an annuity provider owned by a private equity company. The lawsuits allege that fiduciaries failed to follow IB 95-1 by choosing Athene instead of a more traditional insurance company, placing participants’ benefits at increased risk of default (even though all transferred benefits have so far been paid). The lawsuits are all in early stages, so whether any will survive anticipated motions-to-dismiss remains to be seen.

• Report to Congress on the Employee Benefits Security Administration’s Interpretive Bulletin 95-1 (DOL, June 24, 2024)
• News release (DOL, June 24, 2024)
• Div. T of Pub. L. No. 117-328, the SECURE 2.0 Act of 2022 (Congress, Dec. 29, 2022)

• User's guide to SECURE 2.0 (regularly updated)
• Taking a look at SECURE 2.0's defined benefit plan provisions (Feb. 21, 2023)