How Safe Are the New GM Retirees’ Annuities?
Back in June, thousands of salaried General Motors retirees were given seven weeks to decide whether to take their pension as a lump sum or continue with their lifetime monthly payments. As Pension Rights Center Executive Vice President Karen Friedman wrote in a Detroit Free Press op-ed, the annuity was the better option for most of the retirees.
A number of retirees told us that they agreed with Karen, but said they were worried about the safety of the annuities they were being offered. They were concerned because instead of continuing to pay their annuities out of their pension plan, which is guaranteed by the federal pension insurance program, GM is planning to transfer their pension money to a life insurance company, Prudential, which is backed by state guaranty associations.
What are state guaranty associations? What kind of protections do they provide? We decided to find out what would happen in the very unlikely event that Prudential, which is highly rated, or another insurance company, were to fail.
What we learned is that the level of protection depends principally on where you live. Different state guaranty associations provide different levels of protection. If you are a retiree whose pension is about to be converted into an annuity from an insurance company or has already been converted you may want to take a minute to read our new fact sheet What Happens When a Pension is Transferred to an Insurance Company?
If it turns out that you live in a state with low guarantee levels, you may want to consider joining with other retirees to advocate for limits that will better ensure that your payments will be fully protected throughout your retirement years. You can read about strategies that other retirees have used to protect their retirement security here.
Looking for help with your retirement plan?
If you have a problem with your retirement plan, free help may be available from the U.S. Administration on Aging's network of Pension Counseling and Information Projects. Find help now.
PensionHelp America connects people who need help with their pension, 401(k), and other retirement plans with the pension counseling projects, legal services providers, and government agencies that can help answer their questions. Visit www.pensionhelp.org.
Retirement USA is a national initiative that is working for a new retirement system that, along with Social Security, will provide universal, secure, and adequate income for future retirees. Visit the website.
Did You Know?
A lump sum distribution is a method of paying benefits from a pension plan in which a participant's entire beenfit is paid out in a one-time payment. Lump sum distributions are sometimes called cash outs.