JCPenney Retirees: Contact your state insurance commissioner and elected representative in Congress today!

A Message to JCPenney Pension Plan Participants from UNITE HERE

On April 1, 2021, JCPenney filed a motion requesting that the bankruptcy court authorize a pension annuity buyout transaction with Athene, an insurance company affiliated with private equity firm Apollo. On April 26, 2021, the bankruptcy court judge granted the order.

In the annuity buyout, the pension plan’s assets will be transferred to Athene, and Athene would provide group annuity contracts to pay benefits to plan participants.

In a typical annuity buyout, employees and retirees would lose the protections of the Employee Retirement Income Security Act (ERISA) and the Pension Benefit Guaranty Corporation (PBGC).

If an annuity provider becomes insolvent and is unable to meet its obligations, beneficiaries’ primary protection for recovering unpaid benefits would be the patchwork system of State Guaranty Associations. Some states would only cover $250,000 per annuitant.

To find out your level of protection for annuity benefits, contact the National Organization of Life & Health Insurance Guaranty Associations:

From its inception, Athene’s assets have been managed by private equity giant Apollo Global Management. Apollo recently announced its plan to acquire and merge with Athene. Athene seeks to make profits for its shareholders by earning more on investment returns from plan assets than it is required to pay out to recipients.

In June 2020, NBC News reported on Apollo and Athene in an article titled “As insurance companies take over pension plans, are your payments at risk?” It quoted Joseph M. Belth, professor emeritus of insurance at Indiana University, as saying:

“I think private equity firms are in it for the quick buck and that is what troubles me. Policyholders are pawns in the hands of people like [Former Apollo CEO] Black.”

The article described Athene and Apollo’s investment practices, reporting about Athene’s Iowa insurance subsidiary:

  • Athene Annuity and Life had a surplus of $1.2 billion. In comparison, Prudential Annuities Life Assurance Corp. had a surplus of $6.4 billion with similar assets.
  • Athene Annuity and Life had a high concentration of investments in Apollo-related entities, “$4.1 billion in stocks, bonds and mortgage loans of its ‘parent, subsidiaries and affiliates,” which one expert described as “too many eggs in one basket and an affiliated basket.”
  • Athene Annuity and Life’s reinsurance and coinsurance agreements were overwhelmingly (95%) with affiliated companies.

Athene is regulated by state insurance agencies and the Bermuda Monetary Authority. If you have questions or concerns, you can contact your state’s agency.

The National Association of Insurance Commissioners provides contact information for all state agencies on its website

For residents of Texas, contact Texas Department of Insurance: 800-252-3439 or click here

For residents of New York, contact New York State Department of Financial Services: 800-342-3736 or click here

This information is being provided by UNITE HERE, a labor organization that represents workers in the US and Canada.

Questions JCPenney Plan Participants Should Consider

JCPenney and State Street have written letters to JCPenney pension plan participants describing the transaction with Athene. You can read JCPenney’s April 26th letter by clicking here. You can read State Street’s follow-up letter by clicking here. These letters leave some questions unanswered.

According to JCPenney’s April 1, 2021 motion asking the bankruptcy judge to authorize the pension annuity buyout transaction with Athene, this was the sequence of events:

  • October 26, 2020 – the bankruptcy court authorized JCPenney to sell its operating assets. The purchaser “was unwilling to assume sponsorship of the pension plan.”
  • November 5, 2020 – The Pension Benefit Guaranty Corporation (PBGC) issued a Notice of Determination that it would start an involuntary termination of the pension plan.
  • November – December 2020 – JCPenney, through its committees (Benefit Plans Investment Committee and Benefits Administration Committee), “began the process of studying the feasibility of a Standard Termination, including soliciting interest from an insurance company.”

Did JCPenney solicit only one insurance company? Which company or companies were solicited?

  • January 2021 – “The committees, among other things, received an initial written proposal and sample legal documents from Athene.”

Was Athene the only company to submit a proposal? How many companies submitted proposals?

“With the assistance of their advisors, including Willis Towers Watson (“WTW”), the committees retained an independent fiduciary, State Street Global Advisors (“SSGA”), to evaluate the Standard Termination and select an annuity provider.”

Did the fiduciary determine that Athene was the safest possible provider of the annuity? Was Athene’s proposal compared to proposals from any other companies? Was Athene’s exposure to Collateralized Loan Obligations considered (see reporting by Bloomberg)? Was Athene’s level of surplus compared to other insurers (see reporting by NBC News)? Was Athene’s use of Bermuda-based reinsurance subsidiaries considered?”

  • March 18, 2021 – Date of commitment agreement with Athene

“The Commitment Agreement, which was approved by the committees and SSGA, provides for a revocable “buy-in” group annuity contract (“GAC”) to be signed with Athene. The Commitment Agreement provides for regulatory notices to be provided to Pension Plan participants, and Pension Plan assets to be transferred to Athene for the purpose of paying Pension Plan benefits to such participants. Following receipt of approval from the applicable insurance regulator, the GAC itself will be executed, and the effective date of the Standard Termination will subsequently occur. The Pension Plan stakeholders estimate that Athene will officially begin administering the direct payment of Pension Plan benefits, following the conversion of the GAC from a “buy-in” to a “buy-out” GAC by November 2021 (the date of which may be subject to change based on liquidation of certain assets).”

After a buy-out, typically the primary backup for policy holders in the case of insolvency of the insurer would be the State Guaranty Associations. How many plan participants are eligible to receive benefits greater than their State Guaranty Association’s coverage level?