Summary: GAO discussed: (1) risks pensioners faced when their defined benefit plans purchased insurance annuities that are not federally insured; (2) how insurance industry problems affected participants in defined contribution plans; and (3) issues associated with extending federal guarantees to insurance annuitants. GAO noted that: (1) defined benefit plan pensioners whose plans purchased insurance annuities for them lost the federal guarantees they had from the Pension Benefit Guaranty Corporation (PBGC) and gained coverage from state life insurance guarantee law; (2) many state laws only covered a small portion of benefits; (3) insurance industry problems adversely affected retirees and participants in defined contribution plans where PBGC had not guaranteed their benefits; (4) 3 million to 4 million retirees and their survivors received annuities purchased by their pension plans from life insurance companies; (5) varying state coverage inadequately protected some retiree annuitants; (6) there was no statutory requirement to ensure that benefit plan administrators considered the availability of state guarantees when they bought annuities; (7) industry and government sources indicated that, to date, no retiree had lost benefits due to an insurance company failure; and (8) if Congress wants to extend federal protections to retiree annuitants, it must consider numerous funding and administrative issues.
