Concerns about pension benefits being transferred to private equity owned insurers were front and center at today’s Senate Banking Committee hearing.
Senator Brown opened the hearing by remarking on Lockheed Martin’s transfer of $4.3 billion of pension obligations to Athene, owned by Apollo Global Management.
Senator Brown said,
“Overnight, Lockheed Martin employees and retirees were notified that their pensions would be managed by Athene and no longer covered by ERISA or the Pension Benefit Guaranty Corporation. Many employees are exceptionally nervous about that. It’s one recent example of private equity giants’ expansion into people’s pensions and into the insurance industry. We know that workers end up worse off when Wall Street private equity firms get involved. We’ve seen it over and over again in industry after industry.”
In questions to Steven Seitz, Director of the Federal Insurance Office, Brown asked about this loss of federal protections and what risks could be posed to workers and the broader financial system.
Senator Elizabeth Warren asked Seitz if pension benefits transferred to Athene are as financially secure as they were before the transfer.
Senator Warren said,
“Exposing Americans’ retirement savings to more risk is exactly how private equity makes its money. Riskier and more complex investments mean that private equity-backed insurers can jack up their returns and their short-term profits, but the pensions are more vulnerable to being wiped out by a market downturn which endangers the insurance company’s solvency… For example, one fifth of Athene’s portfolio is invested in risky asset backed securities and leveraged loans made to companies that are already highly in debt. Even worse, many of Athene’s risky investments are created or managed by the parent company, Apollo, itself. This means that Apollo collects fees on the investments that it directed its insurance arm to make… This is a problem of more risk, and the risk is borne by people who have invested for all their working lives in their retirement security.
Senator Warren called for federal and state insurance regulators to step up and address the risks that private equity poses to pensioners and workers.
“I appreciate that Treasury and NAIC are looking at this issue closely, but enough studying. It is time to act. I look forward to working with both of your offices to ensure that happens.”