By Allan Sloan
One of the more interesting moves that companies are making these days is "derisking" themselves by converting employees' pensions into annuities.
While this maneuver reduces risks for companies, it creates a risk for pensioners. That's because pensions are guaranteed by the federal Pension Benefit Guaranty Corp., or PBGC, while annuities are guaranteed only by the issuing insurance company. And even though state guarantee corporations back insurance companies, that's not the same as a federal government guarantee.
Why am I taking you through this? Because last week, I got a notice from Graham Holdings, the former Washington Post Co., that the pension I earned during my days as Wall Street editor of Newsweek and have been collecting for about a dozen years has been converted into an annuity from insurer MassMutual.
A few years ago, Tribune Co., which owned my former employer Newsday, converted my pension into an annuity from F&G Annuities & Life. But that pension, which I've also been collecting for about a dozen years, was only about a seventh the size of my Graham pension. So I didn't pay much attention to that change because it didn't involve what I considered serious money.
But when I got the note from Graham, I decided to see why companies are doing these conversions -- and to see what kind of risk the conversions pose to pension recipients like me. (Yes, some of us still have nongovernment pensions.)
Graham declined to comment. But when I parsed some Graham Securities and Exchange Commission filings and combined what I found there with information that I got from Tribune's owner, Nexstar Media Group, I realized that the annuity-for-pension swap can not only involve serious money but also simplify a company's operations considerably.
From a company's view, what's not to like? Especially since the company can tell its pensioners that their income won't be affected by their becoming annuitants.
Now, let me take you through some of the math.
In its third-quarter 10Q filing, Graham said that converting approximately 1,800 pensions (including mine) into MassMutual annuities generated about $700 million in pretax gains that will be reported in the fourth quarter.
That was on top of a 2019 transaction that I hadn't heard about until I started poking around Graham: a $91.7 million pretax gain from converting about 3,800 pensions into MassMutual annuities.
You can see why Graham was interested in doing this -- it generated about $800 million of pretax profits and still let it tell pensioners, as it did in its letter to me, that they won't be harmed by the conversion.
That $800 million, which makes its way into income statements gradually, is more than the pretax profit that Graham, a conglomerate whose holdings include the Kaplan education business, Slate magazine, TV stations, and car dealerships, has earned in any year since it renamed itself after selling the Washington Post to Jeff Bezos in 2013.
Now, to the operations question.
Gary Weitzman, Nexstar Media's chief communications officer, told me in an email that converting Tribune pensions into annuities "resulted in lower Pension Benefit Guaranty Corp. premiums and admin fees for the pension plan."
In addition, he told me, "Life insurance companies do not have the regulatory burden and fee structure that pension plans have. This helps the cost structure of the pension plan."
Now to return to the risk question. It turns out that MassMutual has a higher credit rating than Graham. So you can argue that Graham derisking itself may have derisked me, too.
But even though MassMutual has a near-AAA credit rating, it's still not an arm of the federal government, which the PBGC is. Insurance companies have been known to fail. But the PBGC isn't subject to failing.
A final note: Even though I'm no longer a Graham pensioner, I still have a stake in the company's financial well-being because, for about a dozen years, I've been collecting payments about a third the size of my pension fund from a Graham SERP -- a Supplemental Executive Retirement Plan.
Graham's deal with MassMutual didn't cover SERPs. But even though SERPs aren't backed by any entity other than Graham Holdings, I've got total confidence that Graham will keep on paying me.
And that, as they say, is the bottom line.
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November 08, 2024 03:00 ET (08:00 GMT)
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