De-risking the American Red Cross Retirement System
Since at least 2009, the American Red Cross has been “de-risking” the retirement system. De-risking, according to the Red Cross, refers to the concept of transferring risk (like participant longevity and interest rate fluctuation) to another party – in this case, Red Cross retirees and annuity companies. Common de-risking strategies include offering lump sum payments, freezing benefits and purchasing annuity contracts. De-risking is widely used by sponsors of defined benefit plans across the U.S.
In a letter to retirees affected by the purchase of annuity contracts in 2017, the Red Cross wrote, “… a group annuity … would be the best … way to secure pension benefits for retirees and beneficiaries, maintain a healthy plan for future retirees, and minimize costs and business risk.” The organization added that as a non-profit, cost savings through annuity contracts and other de-risking strategies would be redirected to mission work.
Specific de-risking actions include the following:
- The Red Cross closed the retirement system to new members in 2009 and froze benefit accumulation for vested employees in 2012.
- In 2013 and again in 2016, the Red Cross opened “special election windows” and provided “cash-outs” to 10,516 eligible employees.
- In 2017 and 2022, the organization purchased annuity contracts with Athene, covering 16,793 retirees. At this time, the Red Cross also changed the way retirees interacted with two previously purchased annuity contracts, Aetna and John Hancock. Retirees now interact directly with these companies.
- In January 2019, the Red Cross began offering unrestricted lumps sums to retirees as they became benefit eligible. Since that time, about 70% of retirees (numbering roughly 4,700) have elected this settlement.
We are not aware of any retirees who have lost their hard-earned benefit as a result of these strategies. Perhaps the most significant change for retirees with annuity contracts is that, while your benefits are “insured”, the protection is provided by the state guaranty association where you live and not the federal Pension Benefit Guaranty Corporation. (More on SGAs in future newsletters.) In addition, many retirees have been inconvenienced by the need to deal directly with Aetna, John Hancock and Athene instead of the single Benefits Service Center.
Part of your ARCAN member benefits include the ability to call on ARCAN links volunteers for help navigating the labyrinth of retiree benefits offered by the American Red Cross.
