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How safe are pensions held by insurance companies?

If state regulators can't find a healthy insurer

If state regulators can't find a healthy insurer to take over the business of a failing company, the Guaranty Fund provides limited protection for that company's annuitants and policyholders. Photo Credit: iStockphoto by Getty Images

I retired from Verizon as a manager, with a defined pension and health benefits. In 2013, the company sold management pensions to Prudential Insurance Co. My concern is that in the event of a catastrophic financial failure by Prudential, our pensions are no longer protected by the federal ERISA law. Can you explain how New York protects its residents if an insurer fails?

If state regulators can’t find a healthy insurer to take over the business of a failing company, the Life Insurance Company Guaranty Corp. of New York (also known as the Guaranty Fund) provides limited protection for that company’s annuitants and policyholders.

For readers who don’t know, in the past five years some big employers have transferred their pension obligations to life insurers. In such transfers, the employer uses pension plan assets to buy a group annuity contract from the insurer, and the insurer becomes responsible for paying plan benefits. These benefits are no longer pension plan obligations covered by ERISA, so they’re no longer protected by the federal Pension Benefit Guaranty Corp., known as PBGC.

This year, a 65-year-old retiree’s pension with PBGC coverage is protected up to $5,369.32 per month, or about $64,432 per year. New York’s Guaranty Fund provides much less protection — and its coverage for group annuity contracts depends on the wording of the contract.

When a group contract guarantees benefits to specifically identified individuals, each individual has up to $500,000 of Guaranty Fund protection. If you currently receive monthly payments, the $500,000 cap would apply to the total payout over your lifetime. But group annuity contracts typically don’t guarantee benefits with respect to identified individuals, and Guaranty Fund coverage for the whole group is capped at $1 million.

THE BOTTOM LINE New York’s Guaranty Fund provides limited coverage for a failed insurer’s annuitants and policyholders.

WEBSITES WITH MORE INFORMATION

  • nwsdy.li/PensionTransfer
  • nwsdy.li/PensionInNY
  • TO ASK THE EXPERT Send questions to Ask the Expert/Act 2, Newsday Newsroom, 235 Pinelawn Rd., Melville, NY 11747; or, email act2@newsday.com. Include your name, address and phone numbers. Advice is offered as general guidance. Check with your professional consultants for your specific needs.

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