This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 30, 2018).
MetLife Inc. disclosed for the first time the scale of a records mistake that left possibly tens of thousands of workers without their monthly pension benefits.
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The company said it expects to increase its reserves by $525 million to $575 million on a pretax basis to account for the problem, a major black eye for the nation's second-largest life insurer by assets.
MetLife also postponed its fourth-quarter earnings report, said it would revise prior financial reports and disclosed that the Securities and Exchange Commission enforcement staff "has made an inquiry" about the matter. MetLife said it also is responding to questions from its lead state regulator in New York and other state regulators.
Shares of MetLife fell about 7% in after-hours trading.
The problems originated with a MetLife business that assumes responsibility for some or all of the payments due participants in private-sector plans, a practice known as "pension risk transfer." Many employers with old-fashioned pension plans, under which they pay monthly benefits to retired workers, are eager to reduce their exposure to investment and interest risk by shifting this responsibility to insurers.
What MetLife discovered late last year is that it had failed to pay monthly pension benefits to possibly tens of thousands of workers in accounts it assumed as part of these pension risk transfer deals.
In mid-December, MetLife disclosed the unpaid pensions, saying it had failed to aggressively search for plan participants and that reserves for the pension-risk business needed to be bolstered to reflect the overdue amounts.
The New York insurer said these retirees had average benefits of less than $150 a month. It has been working with a firm that specializes in finding addresses to get in touch with the people who are owed money. It had set a goal to determine by Feb. 1 how much money it owed people. A law firm hired by MetLife has been investigating how its retirement business erred in allowing the pensions to go unpaid.
In its Monday update, MetLife said it had determined that its reserves for the group annuities in the pension-risk-transfer business shouldn't have been reduced earlier, thus the need to take a charge to boost them. "Management of the company has determined the prior release of group annuity reserves resulted from a material weakness in internal control over financial reporting," MetLife said.
The total amount expected to weigh on fourth-quarter 2017 net income is between $135 million and $165 million pretax, the company said. The company said the full-year 2017 net income impact would be between $165 million and $195 million pretax. In addition, the company intends to make prior-period revisions to reflect the balance of these adjustments in the appropriate historical periods, the company said.
MetLife now expects to release earnings on Feb. 13 instead of on Wednesday. It expects net income for the fourth quarter to be between $2 billion and $2.1 billion.
It said last month that it believes the group of missing retirees represents less than 5% of about 600,000 people who receive certain pension benefits from the firm.
The workers who didn't get their pensions were owed a defined amount of monthly income when MetLife took on responsibility for the pensions from their employers.
MetLife didn't say in what years it had acquired these particular pension plans, how many different plans the people were involved in and how many years of missing income was owed.
MetLife's effort to find the missing retirees traces back to a pilot project it ran in August 2016 in part due to the Labor Department's pressing private-sector pension plans to do a better job of finding missing participants, MetLife has said.
MetLife's pension business isn't regulated by the Labor Department, but its managers were aware of some additional steps that these private-sector plans were taking. The Labor Department effort has been publicized in trade publications and has been discussed at organizations focused on employer-sponsored benefits programs.
MetLife has been in the pension business for decades. In years past, it had used regular mail to contact future pension recipients, beginning about six months before their eligibility age for drawing the monthly checks, said Michel Khalaf, a senior MetLife executive whose responsibilities include the pension business, in an interview last month. MetLife used addresses it had on file for the people. If the letters were returned as undeliverable, it sought some additional addresses from data firms and sent more letters.
The pilot project involved "a few hundred" participants, Mr. Khalaf said in the interview. MetLife employees tapped into more data sources than previously used, and the company was "more aggressive in trying to find the addresses," he said.
Write to Leslie Scism at email@example.com
(END) Dow Jones Newswires
January 30, 2018 02:47 ET (07:47 GMT)
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