Advisers: Make sure your clients aren’t owed pensions

Here’s a job for investment advisers: Help MetLife, and probably other major life insurance companies, locate retired workers to whom they owe pensions.

Companies have been offloading pension liabilities to insurance companies at a growing rate. That is, the insurance companies take over the responsibility for paying the promised pensions when the employees eventually retire.

This has relieved companies of the problem of keeping track of former employees, as well as the responsibility of having to eventually pay them. It also has reduced their annual premiums to the Pension Benefit Guaranty Corp., which have been rising rapidly in recent years.

All companies sponsoring single-employer defined-benefit plans pay a flat rate of $74 per participant, up from $37, 10 years ago, and a variable premium of $38 per $1,000 of unfunded vested liability, up from $9. These premiums are a powerful incentive for firms to pay an insurance company to take these pensions off their hands.

But Massachusetts Secretary of the Commonwealth William Galvin claims his department has located hundreds of MetLife’s “lost retirees” in the state. Thousands more likely live in other states, and they need to be found and paid their pensions.

Other large insurance companies who’ve been a party to these so-called pension-risk-transfer deals may have similar problems locating former employees who have changed jobs, possibly more than once, and also have changed addresses, possibly several times. Often these workers have forgotten they are owed a partial payment by a former employer.

Investment advisers can help locate retirees who might be owed a pension by one of the insurance companies by asking clients, old and new, about their employment histories: where they worked, how long they were with each employer, and any changes of address during their working lives.

They can help a client who might have earned a right to a pension reach out to one or more former employers to find out if a vested pension was earned, if the pension obligation was handed off to an insurance company and if so, which one.

Often these pensions were earned early in the employee’s career and might have been forgotten as the career progressed and he or she earned a far larger pension with a later employer.

Even if none of their clients has forgotten a pension, the adviser’s interest will have shown that they are focused on their clients’ welfare.

Meanwhile, Mr. Galvin has provided a service not only to the “lost retirees” of Massachusetts, but to such retirees everywhere, and to the insurance industry. His action should encourage insurance companies to search their own records to make sure they have located every worker who is owed a pension by them.

As more and more corporations seek to reduce their pension liabilities, it is likely that the major insurance companies will have to improve their systems greatly in order to keep track of those workers whose pensions they have assumed the responsibility of paying.

The first major company to adopt this strategy was General Motors, which in June 2012 purchased a group annuity contract for the 118,000 retirees in its $33 billion U.S. salaried defined-benefit plan. It was soon followed by many others, and by the second quarter of 2017, single-premium buyouts of corporate pension liabilities totaled $82.4 billion, according to the LIMRA Secure Retirement Institute.

Unlike General Motors and a few others, not all of the employees covered by these annuities were retirees, but often were active workers in defined-benefit plans that had been closed by their employers anxious to shed the liabilities.

Companies transferred an additional $23 billion of liabilities to insurance companies in 2017, an increase of 68% over 2016.

Mr. Galvin’s action should be a warning to these insurance companies that they had better get their systems up to speed to keep track of retired workers covered by these annuities.