Bill would require participants and retirees to be provided critical information when offered a lump-sum buyout of pension benefits
Lump-sum buyouts often provide less money than lifetime pension benefits, and transfer all the risk from employers to retirees and participants
One year ago, the Trump Administration announced it would not pursue an Obama-era proposal prohibiting such buyouts
Murray: “No one should ever have to make a decision that could seriously affect their plans to securely retire without being given all the information they need to understand the consequences.”
(Washington, D.C.) – Today, U.S. Senator Patty Murray (D-WA), Ranking Member of the Senate Health, Education, Labor, and Pensions (HELP) Committee introduced the Information Needed for Financial Options Risk Mitigation (INFORM) Act, which would require pension plan sponsors to provide plan participants and retirees with critical information when offering lump-sum buyouts. The INFORM Act comes one year after the Trump Administration gave employers the green-light to offload pension liabilities and transfer risk to retirees through buyouts, reversing course on a 2015 notice that would have effectively banned this practice.
“No one should ever have to make a decision that could seriously affect their plans to securely retire without being given all the information they need to understand the consequences,” said Senator Murray. “While President Trump has made it clear he’s more concerned with companies’ profits than their workers, I’m fighting to make sure everyone who gets offered a buyout of the pensions they were promised and have earned, also gets the information they need to choose what’s best for their financial future.”
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.
In 2015, following a Government Accountability Office (GAO) report finding that companies were offering lump-sum buyouts to retirees without key information participants needed to make informed decisions, the Department of the Treasury announced it would write new rules effectively ending these buyouts. Last March, the Trump Administration reversed course, and Senator Murray pressed Administration officials to explain the decision. In the absence of guidance prohibiting these buyouts, the INFORM Act would require:
The INFORM ACT is also co-sponsored by Senators Tina Smith (D-MN) and Tammy Baldwin (D-WI).
Read the text of the INFORM Act HERE.
Read more in the INFORM Act fact sheet HERE and below.
Information Needed for Financial Options Risk Mitigation Act (INFORM)
A year ago, the Trump Administration issued Notice 2019-18, which announced that the Department of Treasury (Treasury) and the Internal Revenue Service (IRS) no longer planned to pursue changes to the Internal Revenue Code (Code) to prohibit pension plans from offering lump-sum buyouts to retirees. In the absence of such guidance, in order to ensure that all participants and beneficiaries who are put in the position to make such a crucial decision are afforded sufficient information to make an educated decision, Senator Murray has introduced the Information Needed for Financial Options Risk Mitigation (INFORM) Act.
What is a buyout? A buyout is an offer by a pension plan to a participant, who would receive a pension benefit in the future, or a retiree, who is already receiving pension benefits, for a lump-sum payment in lieu of the 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.
Why are buyouts a problem? When companies offer lump-sum buyouts, they transfer their risk to the participant or the retiree. With a traditional pension, retirees are guaranteed income for their lifetime, but if those participants or retirees are provided a lump sum instead, there is a strong chance they might outlive their savings. The complex actuarial formulas used to determine the immediate value of the lifetime pension benefit often leave participants or retirees, who accept a lump sum offer, with less money than they may have received otherwise. Moreover, in 2015 the GAO published a report that found that disclosures to retirees about buyout offers sometimes omitted key information and that retirees often did not fully understand the trade-offs in the choice they were given.
The Information Needed for Financial Options Risk Mitigation Act (INFORM) would require plan sponsors to provide participants and beneficiaries with the critical information that would allow them to make an informed decision when presented with such a lump sum offer. INFORM would require a paper notice to affected participants and beneficiaries 90 days before the period in which they must make a decision. The required notice would include information that would allow people considering what’s best for their financial futures to compare between benefits offered under the plan and the lump sum, and would explain how the lump sum was calculated, the ramifications of accepting a lump sum such as the loss of certain federal protections, details about the election period, where to follow up with questions, and other information. INFORM would also require disclosure to the Department of Labor so information can be collected on these practices.