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June 01, 2023

AT&T Retiree Risk Increases With Move to Athene

Pension transfers carry implications that are far-reaching and have the potential to significantly impact the security of retiree benefits. The recent case of AT&T transferring its pension assets and liabilities to Athene sheds light on this critical aspect of financial management.

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AT&T, a telecommunications giant, opted for a transfer of its pension obligations to Athene, an insurance company, a move that will reportedly yield a non-cash gain of $350 million. While the numbers make it look like a win for the corporate giant, the implications for the pension holders – the company's retirees – are worth a closer examination.

The Pension Benefit Guaranty Corporation (PBGC), a government-backed agency, protects participants of defined benefit pension plans, offering a safety net in case of plan termination under certain conditions. However, with the transfer of pension responsibilities to Athene, this PBGC protection no longer applies, placing the onus of pension security solely on the shoulders of the insurance company.1

This transition changes the landscape of risk for retirees. Pension payments are projected to remain the same, but the backing safety net is now subject to the financial stability of Athene.2 If Athene were to face financial troubles or, in the worst-case scenario, insolvency, those relying on these pensions could find themselves at risk, given that PBGC protection will no longer be available to them.

AT&T's decision to transfer these obligations lifts the burden of these risks from its own balance sheet. Moreover, it eliminates the need for the company to pay premiums to the PBGC.2 However, it also raises questions about the choice of the insurance company. Why Athene and not Fidelity, which offers similar services and carries a higher rating?

State Guaranty Corporations offer a fallback in such situations, but their ability to cover pensions in the event of Athene's bankruptcy could be limited, especially if demands on their resources are high.

AT&T's pension transfer to Athene offers a compelling case study for the trade-offs companies make in managing their balance sheets and obligations. It is a critical reminder for employees and retirees to understand the implications of such decisions on their retirement security. As the pensions landscape continues to evolve, individuals need to stay informed and prepared for possible shifts, ensuring they safeguard their financial future.


1 - https://www.pbgc.gov/wr/benefits/guaranteed-benefits/your-guaranteed-pension
2 - https://www.thelayoff.com/t/1mtOGCFc