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.
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