Some Post-Dispatch retirees will start receiving their monthly pension payments from an insurance company instead of the Lee Enterprises pension plan.
Lee Enterprises purchased group annuity contracts from insurance companies to transfer $86 million in pension fund liabilities. Such “lift outs” are legal and increasingly common as companies seek to reduce administrative costs, particularly with Pension Benefit Guaranty Corporation premiums based on a retiree head count.
For instance, Gannett Media Corp. recently transferred about $450 million in pension plan liabilities to two insurance companies in such a “lift out.”
As of Sept. 26, 2021, Lee’s pension plan assets totaled $398 million, while projected benefit obligations totaled $384 million, for a funding ratio of 103.6 percent, according to its most recent 10-K filing with the SEC.
That high funding ratio was made possible by the merger of the Buffalo pension plan (which was overfunded) and the Pulitzer Plan (which was underfunded, but within legal range). The United Media Guild and the Buffalo Guild approved that merger.
Lee Enterprises could have done the “lift out” with either of those funds without the merger. The Guild has no recourse here.
The insurance companies are heavily regulated and insured at the state level. According to a pension consultant we spoke to:
“There are state-by-state guarantees but they are not as high at the PBGC level. For example Missouri guarantees up to a present value of $250,000 which would translate into a monthly benefit maybe between $1,250 – $3,000 depending upon the age of the retiree and the nature of the annuity payment (life annuity versus and annuity with a spouse covered). However, in practice insurance companies are so heavily regulated that these types of payments just about never happen and the state has strong incentive to regulate to be sure they never happen.”
So . . .
“The risk is NOT being transferred to retirees. The insurance company is heavily regulated and an expert in annuity payments and reserving for annuities. The selected insurance company quality in such cases is extremely high. Due diligence is thorough as plan sponsors to only transact with very qualified insurance companies.”
Retirees receiving payments from an insurance company are out of the plan. All other retirees stay in the plan.
The pension plan is regulated by the federal government and are protected by the Pension Benefit Guaranty Corporation. That will still hold true if Lee Enterprises is purchased or if it lands in bankruptcy.
The PBGC maximum benefit guarantee is set by law and is updated each calendar year. For a plan with a termination date or sponsor bankruptcy date, as applicable in 2022, the maximum guarantee is $6,204.55 per month, or $74,454.60 per year, for a benefit paid to a 65-year-old retiree with no survivor benefit. If a plan terminates during a plan sponsor’s bankruptcy, the maximum guarantee is fixed as of the calendar year in which the sponsor entered bankruptcy.
The maximum guarantee is lower for an individual who begins receiving benefits from PBGC before age 65 reflecting the fact that younger retirees are expected to receive more monthly pension checks over their lifetimes. Similarly, the maximum guarantee is higher for an individual who starts receiving benefits from PBGC after age 65. The maximum guarantee by age can be found on PBGC’s website, www.pbgc.gov. The guaranteed amount is also reduced if a benefit will be provided to a survivor of the plan participant.