Retired Members

[FranklinB]

I need some clarification on this.

Say plan member John aged 65 is retiring and choose to receive a life annuity. The Plan goes and purchase a life annuity for him from insurance company A. At this point, after paying for John's annuity, does John comes off the Plan's book since A now takes care of John, or would the monthly stipends still be paid from the Plan (who receives it from A).

An extension to the above question is, say the Plan goes bankrupt 5 year down the road with a transfer ratio of 50%. Would John's pension amount get cut by half or is he fine?

Thanks in advance.

[BadBeatMe]

Originally Posted by FranklinB

I need some clarification on this.

Say plan member John aged 65 is retiring and choose to receive a life annuity. The Plan goes and purchase a life annuity for him from insurance company A. At this point, after paying for John's annuity, does John comes off the Plan's book since A now takes care of John, or would the monthly stipends still be paid from the Plan (who receives it from A).

An extension to the above question is, say the Plan goes bankrupt 5 year down the road with a transfer ratio of 50%. Would John's pension amount get cut by half or is he fine?

Thanks in advance.

In this situation, given that the plan has purchased an annuity contract from an insurance company, John is no longer a participant in the plan and loses his PBGC protection. The company going bankrupt wouldn't change anything in terms of his pension. The insurance company going under would be interesting, however.

[Brad Gile]

Originally Posted by BadBeatMe

In this situation, given that the plan has purchased an annuity contract from an insurance company, John is no longer a participant in the plan and loses his PBGC protection. The company going bankrupt wouldn't change anything in terms of his pension. The insurance company going under would be interesting, however.

If the insurance company goes under, state guaranty funds generally kick in, but may not give full coverage. For example, in Wisconsin:

Are all policies fully protected?
Not always. If your insurance company fails, the maximum amount of protection provided by the Wisconsin Insurance Security Fund for each type of policy, no matter how many of that type of policy you bought from your company, is:

Life Insurance Death Benefit: $300,000 per insured life
Life Insurance Cash Surrender: $300,000 per insured life
Health Insurance Claims: $300,000 per insured life
Annuity Benefits (Present Value): $300,000 per contract owner

[Mark Cavazos]

Originally Posted by FranklinB

I need some clarification on this.

Say plan member John aged 65 is retiring and choose to receive a life annuity. The Plan goes and purchase a life annuity for him from insurance company A. At this point, after paying for John's annuity, does John comes off the Plan's book since A now takes care of John, or would the monthly stipends still be paid from the Plan (who receives it from A).

An extension to the above question is, say the Plan goes bankrupt 5 year down the road with a transfer ratio of 50%. Would John's pension amount get cut by half or is he fine?

Thanks in advance.

If the plan is severly underfunded when John retires, then depending on his position, his ability to get an annuity might be restricted.

[Mark Cavazos]

Originally Posted by BadBeatMe

The insurance company going under would be interesting, however.

The selection of an insurance firm is a fiduciary task. If proper due diligence was not followed, the retiree could sue to recoup their losses.

[FranklinB]

Originally Posted by Mark Cavazos

The selection of an insurance firm is a fiduciary task. If proper due diligence was not followed, the retiree could sue to recoup their losses.

Is the retiree given a number of annuity quotes (same form, different life insurance co) to choose from or does the Plan choose one for him/her?

[FranklinB]

THanks for the help. It's been most useful.

[Kenny]

Originally Posted by FranklinB

Is the retiree given a number of annuity quotes (same form, different life insurance co) to choose from or does the Plan choose one for him/her?

The retiree is due an annuity from the plan. The price the plan pays for the annuity does not affect the benefit due.

[Mark Cavazos]

Originally Posted by FranklinB

Is the retiree given a number of annuity quotes (same form, different life insurance co) to choose from or does the Plan choose one for him/her?

The plan picks the carrier.

The decision to purchase an annuity is an investment decision which is where the fiduciary responsibility comes in. In a DB plan, participants do not direct investments and the plan takes on the investment risk.