The dominant reasons for the popularity of pension risk transfers in 2019 keep unchanged from earlier years, with a focus on the four financial management goals listed below.
- “Derisk” the corporate balance sheet by transferring pension obligations to third parties (typically life insurance companies) who assume responsibility for payment and administration of future pension payments to plan participants and their beneficiaries.
- Provide greater financial security to plan participants.
- Eliminate the rapidly increasing costs assessed by the Pension assistance Guarantee Corp. (PBGC). In 2007 the PBGC charged $31 and $8 per participant for single-employer plans and multi-employer plans, respectively. By 2019 the comparable PBGC premiums stood at $80 and $29, respectively.
- concede that plan participants are living longer, as proven in 2019 updates to actuarial mortality tables published by the Society of Actuaries.
Top 2019 Pension Risk move Actions
The following companies took the rule in the size of their 2019 pension risk move efforts.
Bristol-Myers Squibb announced plans in December 2018 to fully terminate the Bristol-Myers Squibb Retirement Income Plan using a combination of lump sum payments and the buy of a group annuity contract from Athene Holding Ltd. As reported in the company’s 10-Q for the quarter ended September 30, 2019, the company paid $1.3 billion to pension plan participants who elected to receive a lump sum payment, and purchased a $2.4 billion contract from Athene to move the remaining pension obligations.
Baxter International Inc. entered into an October 4, 2019 agreement with Prudential Insurance Company of America and State Street Global Advisors Trust Company to buy a non-participating single premium group annuity contract. The transaction is projected to reduce liability for the Baxter International Inc. and Subsidiaries Pension Plan by $2.4 billion and affects 17,200 plan participants, as reported to the SEC in an 8-K dated October 4, 2019.
Lockheed Martin Corporation purchased a $1.8 billion group annuity contract from The Prudential Insurance Company of America in January 2019, affecting approximately 32,000 retirees.
Weyerhaeuser Company announced plans in August 2018 to reduce pension limitations by $1.5 billion-while nevertheless meeting all pension obligations-by the combined use of lump sum payments and a risk move action. On January 23, 2019, Weyerhaeuser Company purchased a group annuity contract from Athene Annuity and Life Company and State Street Global Advisors Trust Company. The transaction affected approximately 28,500 Weyerhaeuser retirees and beneficiaries, as reported to the SEC in an 8-K filed on January 23, 2019.
In a 2018 article titled “Pension Risk Transfers keep Strong in 2018,” we reviewed similar pension risk transfers made last year by International Paper Co., FedEx Corp., AK Steel Holding Corp., and the TJX Companies, Inc.
Pension Plan Sponsors Continue to Close Pensions to New Employees
In an effort to further reduce future pension obligations, large plan sponsors are also closing existing defined assistance plans to new employees and/or reducing benefits.
General Electric announced in November 2019 that it plans to freeze pension benefits for up to 20,000 U.S. employees with salaried benefits, effective January 2021. The move is expected to save between $4 to $6 billion. The GE pension plan has been closed to new entrants since 2012.
FedEx Corp. announced in November 2019 that it will close its defined assistance pension plan to new hires in 2020. Instead, the shipping giant plans to offer enhanced 401(k) benefits to qualifying workers, including an employer match of up to 8%, starting in 2021.
The FedEx move follows a similar action by shipping competitor United Parcel Service, Inc. which closed its pension plan to new employees in three years ago in 2016 according to Wall Street Journal reports.
FedEx transferred responsibility for $6 billion in pension obligations to MetLife in a 2018 action affecting up to 41,000 plan participants and beneficiaries.
Pension plan sponsor actions to close defined assistance plans to new participants are also known as “hibernating” risks or “halting” the plan, according to a recent white paper by Mass Mutual titled “meaningful Decisions for De-Risking Your Pension Plan.” Risks keep already in closed plans, however, in the form of interest rate risk and market volatility.
The Wall Street Journal reported in a November 18, 2019 article that “the majority of the 100 largest corporate pension plan sponsors have implemented some sort of freeze” on pension benefits for new employees.
ERISA and pension expert Mark Johnson welcomes questions from litigators and pension managers about pension risk move matters.