Daily Financial Intel

AT&T’s Retiree Pension Payments Taken Over by Athene

Written by The Retirement Group | Mar 26, 2024 9:10:05 AM

Understanding the Shift: AT&T's Retiree Pension Payments Transferred to Athene

AT&T has made changes to its pension plan for retirees. Beginning with the August pension payment, AT&T will transfer the assets and liabilities associated with the pension plan to Athene, a financial institution that manages pension group annuities for several other companies. This change does not affect the amount of the monthly pension payment. Retirees will receive monthly payments from Athene instead of the AT&T Pension Benefit Plan. The change impacts about 96,000 retirees who receive certain monthly pension benefits from AT&T.


The transaction does not affect retiree health coverage or reimbursements for Medicare Part B premiums that are included with monthly pension benefits. After the switch to Athene, retirees will need to start paying for retiree health coverage directly and receive any applicable Medicare Part B reimbursement separately. The AT&T Benefits Center will reach out to retirees with instructions for setting up this process. Athene will still administer retirees' pensions.


The safety of private pensions has become a growing concern as companies struggle financially and look to offload costly pension obligations. Private insurers have been willing to acquire these pension plans, with deals totaling $110 billion since 2015. Fortune 500 employees should note, however, that pensions taken over by private insurers are not protected from default by the government-backed Pension Benefit Guaranty Corporation (PBGC). Furthermore, insurers are regulated by individual states, not the federal government, and some are affiliated with private equity firms whose short-term profit focus can conflict with the long-term obligations of the pension plans.


When private insurance firms assume responsibility for pension plans, they typically offer participants a group annuity that pays the same amount as the private plan. An annuity is a form of insurance that can provide a monthly income for life. The United States Department of Labor, which oversees compliance with pension regulations, has not objected to these takeovers. However, the PBGC no longer supports these pensions. They are guaranteed by insurers, who must be disclosed at the time of transfer.


In the event that an insurance company becomes insolvent, its assets are transferred to pay policyholder claims. If insufficient, policyholders must rely on state guaranty funds funded by other insurers on a voluntary basis. In contrast to the Federal Deposit Insurance Corporation, which has a pre-funded insurance pool to defend depositors from bank failures, state guaranty funds raise money only after a failure has occurred. “This is what we’ve worried about — when companies sell off their pension plans,” said Karen Friedman, policy director at the Pension Rights Center, a nonprofit focusing on workers’ retirement security.


Athene Holding, an insurer affiliated with private equity firm Apollo Global Management, has become the second-largest buyer of pension plans, having acquired $12 billion in corporate pension obligations from companies such as Bristol-Myers Squibb, Dana Corp., and Lockheed Martin Corp. Athene Holding has around 178,000 people relying on it for pension benefits. However, in Q1 2020, Athene Holding reported a $1.1 billion loss, in part due to financial market turmoil, which raises questions about the risks involved in its investments. In February, researchers at the Federal Reserve Board published a paper that cited Athene as an example of a handful of insurers that are structured in a way that makes them vulnerable to an aggregate shock to the corporate sector.


Essentially, Fortune 500 employees may want to recognize how the recent acquisition of corporate pension obligations by Athene Holding has raised concerns about the potential risks involved for employees who rely on their pensions. Unlike pensions insured through the Pension Benefit Guaranty Corporation (PBGC), pensions taken over by private insurance companies such as Athene are no longer backed by the PBGC and are instead backed by the insurers themselves. Furthermore, insurers are regulated by the states in which they operate, and in some cases, companies like Athene may be based in offshore locations like Bermuda, which could make it more challenging for employees to seek recourse in the event of financial troubles. Given that Athene reported a significant loss in Q1 2020, and was cited as a potentially vulnerable insurer by the Federal Reserve Board, there are valid concerns about the risk involved in relying on this type of pension arrangement. If companies like Athene were to file for bankruptcy, the employees who rely on their pensions could be left in a precarious financial position.