Pensions are complicated enough without employers passing the buck onto someone else, but increasingly, that is what’s happening. In exchange for buying a group annuity, employers are transferring their pension-paying obligations to life insurance companies, who pay the pension. The practice, known as pension risk transfer or de-risking, has implications for how pensions are protected and whether the payments are off limits to creditors. About 33 million Americans still participate in private pension plans, according to the federal Pension Benefit Guaranty Corp.

Until recently, pension risk transfer accounted for only a tiny number of pension plans, but the practice took off when Verizon and General Motors sold about $36 billion of pensions to insurance companies in 2012. “It made plan sponsors realize this is something they could do,” says Jarred Wilson, vice president and actuary at Segal, a benefits consulting company. Although pension risk transfers fell to a more typical $4 billion in 2013, they have steadily grown to $30 billion in 2019, he says. That amount is still a drop in the bucket for pension plans, also known as defined benefit plans, which are worth trillions in the U.S., but “this is not going to go away,” says Edward Stone, a lawyer who has represented pensioners in pension risk transfer cases.

When an insurer takes over the plan, that pension is no longer protected by federal law, but rather state law, which regulates insurance companies. In 1974, Congress passed the Employee Retirement Income Security Act or ERISA, which established the Pension Benefit Guaranty Corp. for private pensions. PBGC is largely funded by premiums collected from defined benefit plan sponsors. If the company that owns a pension plan fails, PBGC will continue to cover part, if not all, of the monthly payments, depending on the pensioner’s salary and age. In 2021, a 65-year-old could receive a maximum of about $6,034 a month, rising to $18,343 for a 75-year-old.

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