Murray, Wyden Press Trump Administration to Explain Decision to Roll Back Key Retiree Protections
Senators Murray and Wyden write to Treasury and IRS seeking explanation of decision to reverse 2015 policy on regulating lump-sum payouts to retirees
Lump-sum payouts help companies save money by dumping financial risk onto retirees—who also often receive less money than they would otherwise
2015 Notice made clear Treasury would propose rules to address the practice, Trump Administration’s new 2019 Notice reverses that position to allow it
Pensions pay out regularly over a retiree’s lifetime and are covered by federal protections, while lump-sum payouts—which retirees must make last the rest of their lives—have no federal protections
CNN: It just became easier for employers to dump retirees' pensions
Senators: “This practice is particularly concerning for retirees who will once again be required to make critical decisions that could leave their retirement security at much greater risk… The decision to reverse course on this issue, without providing any explanation for the reversal, is baffling and alarming.”
Washington, D.C. – Yesterday, Senator Patty Murray (D-WA), ranking member of the Senate Health, Education, Labor, and Pensions (HELP) Committee, joined by Senator Ron Wyden (D-OR), ranking member of the Senate Finance Committee, sent a letter to U.S. Treasury Secretary Steven Mnuchin and Internal Revenue Service (IRS) Commissioner Charles Rettig requesting an explanation for the Trump Administration’s alarming decision earlier this month to reverse course from a 2015 notice and give employers across the country the green light to offload pension liabilities and transfer risk to retirees by offering them a one-time lump-sum payment in lieu of the pensions they were promised.
“We write today regarding Notice 2019-18, which announced that the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) ‘no longer intend to amend the required minimum distribution regulations under §401(a)(9) of the Internal Revenue Code (Code)’ for the purpose of prohibiting pension plans from offering lump-sum buyouts to retirees. This practice is particularly concerning for retirees who will once again be required to make critical decisions that could leave their retirement security at much greater risk without receiving sufficient information for making such decisions. Treasury and IRS announced the proposed prohibition four years ago in Notice 2015-49. The decision to reverse course on this issue, without providing any explanation for the reversal, is baffling and alarming,” wrote the Senators.
The original 2015 notice was issued after a GAO report found that disclosures to retirees about buyout offers on their pensions often omitted key information and that retirees often did not fully understand the trade-offs involved in the choice they were given. Retirees who take these lump-sum payments—which often leave recipients with less money than they were promised in their pension plans—must make them last the rest of their lives. While pensions are covered by the Employee Retirement Income Security Act’s (ERISA) protections and are backed by the Pension Benefit Guaranty Corporation (PBGC), lump-sum payouts have no such protections.
The full text of the letter is below and the PDF can be found HERE.?
March 27, 2019
The Honorable Steven T. Mnuchin
Secretary of the Treasury
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
The Honorable Charles Rettig
Commissioner
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224
Dear Secretary Mnuchin and Commissioner Rettig:
We write today regarding Notice 2019-18, which announced that the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) “no longer intend to amend the required minimum distribution regulations under §401(a)(9) of the Internal Revenue Code (Code)” for the purpose of prohibiting pension plans from offering lump-sum buyouts to retirees. This practice is particularly concerning for retirees who will once again be required to make critical decisions that could leave their retirement security at much greater risk without receiving sufficient information for making such decisions. Treasury and IRS announced the proposed prohibition four years ago in Notice 2015-49. The decision to reverse course on this issue, without providing any explanation for the reversal, is baffling and alarming.
A buyout is an offer by a pension plan to a retiree, who is already receiving pension benefits, for a lump-sum payment in lieu of future lifetime payments from the pension plan. Companies who sponsor pension plans generally offer lump-sum buyouts to improve their balance sheets and reduce the total liabilities of their pension plans. In doing so, however, they also transfer their risk to retirees that the retirees might outlive their savings. The complex actuarial formulas used to determine the immediate value of the lifetime pension benefit also often leave retirees who accept a lump sum offer with less money than they may have received otherwise.
Though not all lump-sum buyouts are bad for those retirees accepting such offers, the decision about whether to accept such a buyout offer is complex.
