Washington, D.C.- In response to private equity’s growing encroachment into the retirement services industry – the International Brotherhood of Teamsters and UNITE HERE have announced an alliance to strengthen the protection of pension benefits.
The two unions cited the recent multi-billion-dollar pension buyout deals by Apollo Global Management’s (NYSE: APO) Athene subsidiary as the spark for the new alliance. Athene claimed the top spot in the so-called pension risk transfer (PRT) market in 2020 and 2021, assuming tens of billions of dollars of pension obligations from large corporate plans including JC Penney, Alcoa, Lockheed, and Lumen Technologies.
The two labor organizations plan to advocate for more state and federal oversight of group annuity providers.
Of particular concern are risk transfers. The Teamsters and UNITE HERE are concerned that workers’ retirement assets are being moved into complex financial structures that lack transparency. Private equity owners may be using investment strategies that have heightened credit and liquidity risks.
Athene typically has reinsured most of its assumed pension obligations to affiliates based in Bermuda. A California-based Apollo affiliate then would sell some of the corporate and government bonds backing the pension obligations and replace them with relatively illiquid investments like collateralized loan obligations, private buyout loans, and various alternative investments. Many of these replacement investments were originated or managed by other Apollo affiliates, which resulted in additional fees paid to Apollo.
The issue has drawn the attention of Senate Banking Committee Chairman Sherrod Brown, who recently requested that both the Federal Insurance Office (FIO) and the National Association of Insurance Commissioners (NAIC) look into the issue of private equity insurers in the pension buyout market and how the safety of retirees’ benefits may be affected.
The union initiative was prompted in part by years of inaction on the part of state insurance regulators. “We need more than slogans and study groups,” said UNITE HERE President D. Taylor. “They’ve been studying these issues for years. Meanwhile, hundreds of thousands of workers have seen their pensions handed over to private equity-backed insurance companies. The stakes of continued inaction are just too high.”
Taylor said in addition to advocating for updated fiduciary guidance and more effective state and federal regulation of annuity providers, the union alliance is exploring ways to negotiate protections into union contracts that would give workers a voice when companies seek to transfer pension obligations to insurance companies.