Pension Buyouts.

By Mary Williams Walsh

The following piece was written by Mary Williams Walsh, managing editor of News Items, and a veteran reporter on the (public and private) pensions beat. It’s a cautionary tale.

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The Fed’s interest-rate hikes are having a notable unintended consequence. They’re hastening the end of the era of traditional, defined-benefit pensions, the kind that pays a monthly check from retirement to grave. 

Retirees who still have such pensions don’t have to worry about outliving their assets, a big plus. But companies don’t want to operate such plans any more. By law, they can get out from under the obligations by paying a life insurer to take them on. The retirees still get the same lifelong payments as before. The insurers have plenty of experience with annuities, which are essentially pensions by another name.

The deals, often called pension buyouts, have been possible for decades, but they were infrequent in recent years, when interest rates were very low. Last year, the Fed started raising rates and the floodgates opened.