As of July 9, 2015, sponsors of defined benefit pension fundswill be prohibited in most cases from offering retirees alreadyreceiving pension checks a lump-sum buyout.

Lump-sum buyouts had been permissible under aprovision of tax law that only allowed increases to benefitpayments.

But the Treasury and the IRS have determined that going forward,the only type of increases allowed will be those made to “ongoing”annuity payments, and not those that “accelerate” those payments,as lump-sum arrangements do.

The notice does notaffect buyout deals with vested, terminated employees, so long asthey are not already receiving benefits.

The notice might come as a surprise to many, wrote Bob Collie, achief research strategist at Russell Investments, but regulatorshave been signaling concern over the buyouts, or so calledrisk-transfer agreements, of late.

“The notice can be seen as an affirmation of the regulators'commitment to ensuring that the retirement system is focused on theprovision of lifetime retirement income, not simply on theaccumulation of wealth,” explained Collie in a blog post.

Before leaving the helm of the Pension Benefit Guaranty Corp.,erstwhile Director Josh Gotbaum testified to the ERISA AdvisoryCommittee on the matter of lump-sum buyouts to existingretirees. “They are legal, many people like them, and theyare bad for you,” said Gotbaum, as noted by Collie.

Last winter, the Government Accountability Office issued areport on pension de-risking strategies at the behest of Sen.Bernie Sanders, I-VT, who is seeking the Democratic nomination forpresident, and now-retired Rep. George Miller, D-CA, who was aforce behind the Multiemployer Pension Reform Act of 2014.

The GAO's data showed 22 sponsors made lump-sum offersto terminated vested employees or retired employees in 2012,resulting in payouts of $9.25 billion. The GAO did not separatelump-sum offers to retirees from offers to terminated employees. Inhis post, Collie said about “a half dozen” sponsors have madeoffers to retirees since Ford and GM did so in 2012.

Other analysis from the private sector suggest as manyas 200 lump-sum offers to terminated employees and retirees weremade in 2012.

While notices on the tax implications of lump-sum arrangementsand a statement comparing the value of the lump sum to the originalvalue of the monthly pension payment were required by the Treasury,the GAO's report nonetheless concluded that the information “maynot be sufficient to enable participants to make an informeddecision.”

After interviewing participants who were offered pensionbuyouts, the GAO found most of the participants who accepted lumpsums did so for fear their employer would not be able to honorfuture pension obligations. Most of the participantswho rejected a lump-sum offer said they did so because theyfelt the value was “unfair or not to their benefit,” according tothe GAO's report.

The GAO recommended improved oversight, not only from Treasurybut also from the DOL.

Collie said the new notice from Treasury is likely to beunwelcomed by sponsors who have been considering such steps buthave not initiated the process—exemptions will be provided forthose sponsors who have taken concrete measures to offer a buyoutwindow to retirees.

“With the removal of this option, the only remaining means of capitalizing retiree liabilities isthrough pension buyouts (i.e., the purchase of annuities froman insurance company), which tend to cost more than lump sum cashouts,” Collie wrote.

“However, it does at least point to a clear vision of what theretirement system is intended to be: a vehicle for the provision oflifetime retirement income,” he added.