If any company in the United States wants to sell you a guarantee that- in return for a premium- they will make monthly payments to you for as long as you are alive, that company simply needs a license from a state to do so.

This really-not-so-simple requirement actually has massive implications. Licensure is a critical cog in a system which has provided financial and retirement security for millions of Americans for generations, and for good reason. Achieving and maintaining this status is anything but simple, of course.

Approaching two hundred years or so in the making have been those state law-based regulatory requirements which are imposed on companies before they are licensed to make what would otherwise seem to be an outrageous guarantee of monthly payments for the rest of your life. These rules governing the amount, investment, secure handling, reporting and auditing of assets backing those guarantees issued by licensed insurers have resulted in a robust regulatory scheme governing the capital which backs these guarantees.

The system is far from perfect, for sure. Even now, the states are struggling with the manner in which to appropriately deal with offshore private capital of insurers, and the impact of this growing practice on the credibility of these guarantees; and there are serious public policy concerns about whether the state guarantee association structures (which effectively “insure the insurers”) is adequate. In addition to the regulatory imperfections, there likely are few among us who haven’t had horrible experiences in dealing with insurance companies. Then, abusive sales practices have always haunted the industry; the industry has not been particularly adept at transparency; and any ERISA standards by which to assess, compare and monitor the appropriateness of the particular terms of any these guarantees which are purchased by retirement plans are but in the developmental stages.

But we need look no further back than the MEWA debacles of recent decades to see what happens when privately issued “benefit promises” are not protected by this regulatory scheme. Think about those unscrupulous promoters who used ERISA to avoid the financial reserves requirements otherwise imposed by states on health insurers as a condition of maintaining their license to issue critical insurance guarantees. When circumstances turned against those promoters who had promised an “unreserved for” benefit (as the actuaries will tell you that circumstances inevitably will), hundreds of thousands of participants in these plans were left devastated after paying for “health insurance” which ultimately was not there when they needed it the most.

For all of its deficiencies, this regulatory scheme still well governs the reserving, secure handling, and investment of the $5.7 trillion in the general account assets of US life insurers (as of the end 2024, according to the ACLI 2024 Life Insurers Fact Book) which (among other things) backs up the lifetime income promises utilized by defined contribution plans.

There are serious implications for the retirement plan industry related to this state of affairs. The raw power and impact of $5.7 trillion in accumulated assets and their proper management cannot be ignored by the industry, especially given the likelihood that, ultimately, millions of ERISA plan participants may well be relying upon this massive pool for their retirement security. Successfully regulated capital is critical to retirement security in the U.S., and is a matter to which the non-insurance industry’s serious attention cannot long be avoided.