U.S. Takes Over Insolvent Kemper Pension Plan

By Arthur D. Postal, Washington Bureau Chief

NU Online News Service, Oct. 21, 4:52 p.m. EDT, Washington?The Pension Benefit Guaranty Corp. has moved to take over the pension plan of the troubled Kemper Insurance Companies, affecting 12,000 employees and retirees, because actuaries projected that the company had less than half the money needed to fund it.[@@]

Kemper officials said they did not contest the action. The takeover constitutes the largest federal bailout of a pension plan for an insurer-sponsored pension plan. Insolvent Reliance Co.'s pension plan was underfunded by $124 million when it was taken over by the federal agency in 2002.

Specifically, the PBGC announced today that it has become the trustee for Lumbermens Mutual Insurance Co., the lead carrier for Kemper, which is based in Long Grove, Ill.

The company is in run-off since earlier this year, and under the supervision of the Illinois Insurance Dept.

"The action by the PBGC does not change Kemper's run-off status and will not affect our ability to continue executing our run-off plan," said a staff official.

The PBGC said it is taking over the plan, called the Kemper Retirement Plan, because it is only 48 percent funded, with about $515 million in assets to cover $1.055 billion in liabilities. The PBGC said it expects to be liable for about $529 million of the $540 million shortfall. The pension plan was terminated as of today.

Under federal pension law, the maximum guaranteed pension at age 65 for participants in plans that terminate in 2004 is $44,386 per year. The maximum guaranteed amount is lower for those who retire earlier or elect survivor benefits, the agency said.

In addition, certain early retirement subsidies and benefit increases made within the past five years may not be fully guaranteed. Kemper stopped writing new and renewal policies last year in the wake of deteriorating financial results and resulting downgrades from ratings agencies. It entered run-off in late January or early February 2003, the staff official said.

The Illinois Insurance Department approved its run-off plan in June; it was filed with the agency in March. According to the state agency, Kemper projects it will have only $90 million in premium revenue this year, and virtually none thereafter, and that all investment income is being used to pay expenses.

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U.S. Takes Over Insolvent Kemper Pension Plan

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