Apollo is opposing push to tighten rule for key insurance business

(Bloomberg) –Apollo Global Management Inc. is combating a campaign to toughen rules for corporate pension plans that want to offload their obligations to insurers, a crucial growth area for its Athene retirement annuities business.

The US Department of Labor has until December to tell Congress whether to update a policy advising pension plans to choose the “safest” option when transferring obligations — unless doing otherwise would be in the interest of participants.

Unions and pension watchdogs want to strengthen the directive, known as IB 95-1, warning that insurers tied to alternative-asset managers such as New York-based Apollo could expose retirees to greater risk. Athene counters that it’s well capitalized and that private equity fills a need in the insurance industry, telling the Labor Department that the directive doesn’t need to be revised.

Athene’s investment in Apollo-issued securities is a “source of strength,” Bill Wheeler, an executive for the insurer, said Tuesday at a public meeting held by an advisory council for the Labor Department.

Apollo’s insurance arm is the largest provider of retirement annuities in the US and a leading player in pension-risk transfers. It has completed 43 transactions covering 430,000 participants worth $41.5 billion as of the end of March, including deals with AT&T Inc. and Lockheed Martin Corp. It also took over $2.8 billion of pension obligations for 30,000 JCPenney retirees after the retailer filed for bankruptcy.

Protecting Retirees

The Labor Department is studying whether the pension directive needs an overhaul under a mandate contained in a retirement-reform law Congress passed last year known as the SECURE 2.0 Act. 

The department has conducted more than 25 stakeholder meetings and is analyzing industry practices and trends “with an eye toward ensuring that the hard-earned retirement savings of America’s workers are safeguarded,” agency spokesman Grant Vaught said.

Athene welcomes the discussion and supports upholding the directive’s principles, which are “focused on selecting the safest available annuity providers for retirees’ pensions,” the insurer said in a statement. A “fair assessment of the facts” will confirm that Athene is “among the most transparent, well capitalized, and customer-focused providers in the market.”

The debate over the directive reflects the growth of the pension-risk transfer market, with companies offloading defined-benefit plans to insurers such as Athene — which, in turn, sell annuities to the companies while taking on the risk to make payments to retirees.

Apollo, which co-founded and later merged with Athene, has been spending more time in Washington to get Congress’s buy-in for its insurance business. Athene hired advisers including Preston Rutledge — who worked in the Labor Department during the Trump administration — to lobby Congress on insurance regulation and last year’s retirement law.

The firm also argued in a letter to a Labor Department advisory council this month that the guidance as it stands gives pension administrators flexibility. Any changes could limit the number of products available to participants, reduce competition and raise the cost of plans, Sean Brennan, executive vice president for Athene’s group that handles pension-risk transfer transactions, said in the letter.

No insurer has missed a payment because of insolvency since the pension directive was implemented in 1995, the American Council of Life Insurers told the Labor Department.

‘Red Flag’

Still, pension advocates and unions have raised concerns over insurers tied to alternative-asset managers because they invest in structured credit and other non-traditional vehicles.

The United Food & Commercial Workers International Union is pushing for more scrutiny of annuity providers’ allocations to alternative investments, and the Pension Rights Center is advocating to change the “safest annuity” standard.

“We’re raising the red flag so the Department of Labor will tighten up its regulations to ensure that fiduciary rules are strengthened,” Karen Friedman, executive director of the center, said in an interview. “What does it mean to have the safest annuity?” 

After a pension buyout, the plans aren’t covered by the Pension Benefit Guaranty Corp., a federal agency that insures private-sector pensions. Instead, they’re shielded by state guarantee associations, whose exact protections differ by state but are at least $250,000, according to the National Organization of Life & Health Insurance Guaranty Associations.

Pension-risk transfers in the US hit a record $48.3 billion in 2022, according to data on single-premium buyout sales from Limra, an industry data group. International Business Machines Corp. transferred about $16 billion of pension obligations to Prudential Financial Inc. and MetLife Inc. in last year’s largest deal, according to S&P Global Inc.

–With assistance from Katherine Chiglinsky.