Recent retirement plan legislation mandated that the United States Department of Labor (DOL) review its nearly 30-year-old guidance on the fiduciary standards applicable under the Employee Retirement Income Security Act of 1974 (ERISA) when selecting an annuity provider for a defined benefit plan (think old school pension). This guidance mandate comes at a time when the challenging equity and bond markets of 2022 could have hamstrung pension plans. However, in some circumstances, these plans "saved" by rising interest rates as well as certain liability driven investment strategies. In a nutshell, higher interest rates mean lower lump sum valuations (meaning it may be less expensive to pay out lumps for the same benefit in 2023 as compared to 2021 despite the challenging investment climate leading into 2023).

The DOL recently issued a 36-page memorandum ("consultation paper") detailing its understanding of current guidance as well as its assessment of current trends and issues impacting stakeholders. Section 6 of the DOL's consultation paper sets forth the 13 primary issues raised by stakeholders.  

What's clear is that in the current high-interest rate environment, many employers (including those with historically underfunded pension plans), may be vetting a variety of de-risking options (including pension risk transfers) to "take advantage" of the enhanced funding and decrease balance sheet liability and PBGC premiums in advance of new DOL guidance. While the consultation paper is not law—or even sub-regulatory guidance—it might still be helpful to pension plan fiduciaries considering a de-risking option to ensure that those fiduciaries are considering the trends highlighted by the DOL. Final guidance remains months away.... 

The full DOL consultation paper can be viewed HERE.