29 May 2024

Motorola Transfers Pension Liabilities to Prudential

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Prudential Financial Inc. will take over the pension responsibilities for 30,000 retirees at Motorola Solutions Inc., in the latest deal in which a corporation unloads to an insurer some of the risks of running a pension plan. As part of the deal, the monthly benefits paid to the retirees will remain the same.

Motorola has agreed to purchase from Prudential a group annuity contract. Motorola will transfer about $3.1 billion in U.S. pension liabilities and their risk to Prudential, and it also will hand off a portfolio containing about $3.1 billion of bonds and other assets, company executives said.

Prudential will use the portfolio to generate cash to cover the retiree payouts and a potential profit of undisclosed amount. Motorola also will offer up to $1 billion in lump-sum payments to many other plan participants, the company said Thursday. The combined actions are expected to roughly halve the company's current U.S. pension obligation, to about $4.2 billion from about $8.4 billion.

The Schaumburg, Ill., company is following in the footsteps of General Motors Co. and Verizon Communications Inc. in seeking to limit exposure to interest-rate risk and the possibility of poor investment returns. In transactions also done with an insurance unit of Prudential, the landmark GM transaction in 2012 covered 110,000 retirees and about $25 billion in liabilities, while the Verizon one several months later involved 41,000 retirees and about $8 billion in liabilities, according to Prudential.

Since then, industry analysts and consultants have anticipated more pension-risk-transfer deals, saying it represents one of the greatest growth opportunities for big and financially strong life insurers.

A recent run-up in the stock market and rising interest rates that reduce the value of future pension payments to retirees are providing companies with more flexibility to move employee-benefit costs off their books. Many companies also face rising, required insurance premiums from the Pension Benefit Guaranty Corp., as well as an increase in liabilities stemming from longer-living retirees.

The transfer of liabilities to a life insurer generally takes place when a company's plan is close to having enough assets to cover all future obligations. Still, the moves worry some retirees because their benefits no longer carry a backstop from the Pension Benefit Guaranty Corp. Should Prudential encounter severe financial problems, shortfalls in payouts would be handled through state-mandated guaranty funds that are financed by the insurance industry.

Motorola said it aims to make up to $1 billion of lump-sum payments available to a portion of the 50,000 plan participants not covered by the Prudential deal and expects the U.S. plan to shrink by another 10,000 to 20,000 people this way. The company said it plans to contribute $1.1 billion in cash to its U.S. pension plan this year to further bolster it.

Click here to access the full article on The Wall Street Journal. 


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