The Kemper Corporation, an insurance holding company based in Chicago, Illinois completed a transfer of $205 million in pension liabilities to Banner Life Insurance Company. Kemper’s pension plan was closed to new hires on January 1, 2006, and benefit accruals have been frozen since June 30, 2016. Kemper also offered to make lump-sum payments to certain inactive, vested plan participants who were not yet in pay status. $117 million in lump-sum payments were distributed.
General Electric (GE) recently announced that it had transferred $1.7 Billion of its pension liabilities to two insurance companies owned by Athene Holding Ltd. The two insurance companies are Athene Annuity and Life company and Athene Annuity & Life Assurance Company of New York. The pension risk transfer, or pension de-risking transfer affects approximately 70,000 GE retirees and beneficiaries whose pension benefits were less than $360 per month. This pension de-risking transfer follows GE’s decision to pre-fund $2.5 Billion of its GE Pension Plan funding requirements for 2021, 2022, and 2023.
Athene Holding Ltd. paid a $45 Million fine to the State of New York for violations related to its pension de-risking business operated by its subsidiary Athene Annuity & Life Corporation. The New York State Department of Financial Services (DFS) discovered that Athene both solicited and did insurance business in New York without a license. According to the DFS, Athene entered into fourteen pension de-risking transactions involving thousands of New York residents, including two transactions involving New York based defined benefit plan sponsors. As part of the settlement with the State of New York, Athene will transfer certain transactions to its New York licensed subsidiary, Athene Annuity & Life Insurance Company of New York.
Bethesda, Maryland based Lockheed Martin Corp. transferred $1.9 Billion in pension obligations for 20,000 US retirees to a subsidiary of MetLife, Metropolitan Tower Life Insurance Co. Lockheed Martin has done at least two previous pension risk transfers to insurance companies. In January 2019, Lockheed Martin transferred $1.8 Billion in pension obligations to Prudential and also transferred $800 million to Athene Annuity & Life Co. in an annuity “buy-in” impacting approximately 9,000 Lockheed retirees. For more on “buy-in” transfers, click here to see a previous post by Edward Stone Law. Lockheed Martin contributed $5 Billion to its pension plan during 2018, and $1 Billion in 2019.
On December 18, 2019, Voya Financial, Inc. and Resolution Life Group Holdings Ltd. announced the terms of an agreement where Voya sold substantially all of its in-force life business, including its pension risk transfer liabilities for $1.250 Billion, which included cash of $902 Million, and retained surplus notes of $123 Million. Resolution Life will assume responsibility for the administration of all acquired business. This deal is expected to close in late 2020.
What is the difference between a pension risk transfer via an annuity “buy-in” or “buy-out?”
With an annuity “buy-in” a plan sponsor purchases one or more group annuity contracts to cover pension obligations with the plan sponsor remaining responsible for making payment to the plan participants.
With an annuity “buy-out” the defined benefit plan sponsor transfers all of its pension liabilities to an insurance company by purchasing a group annuity contract and terminates its defined benefit plan. A variation on the annuity “buy-out” is the “lift-out” where the plan sponsor purchases an annuity contract to cover the benefits of certain retirees, but other retirees remain covered by the pension plan and the plan is not terminated.
In August 2019, the LIMRA Secure Retirement Institute reported that “buy-ins” totaled more than $880 million in the second quarter of 2019. “Buy-outs” for the same period surpassed $4.7 billion.
Pension risk transfer facts for 2019:
First Quarter 2019:
- 78 “Buy-out” group annuity contracts purchased by Plan Sponsors
- “Buy-out” purchases surpassed $4.7 Billion
Second Quarter 2019:
- 112 “Buy-out” group annuity contracts purchased by Plan Sponsors
- “Buy-out” purchases were $4.166 Billion
- “Buy-in” purchases were $880 Million. This represented the 5th consecutive quarter with the sale of at least one “buy-in” contract
Third Quarter 2019:
- 111 “Buy-out” group annuity contracts purchased by Plan Sponsors
- “Buy-out” purchases were $7.732 Billion
- “Buy-in” purchases were $0
Fourth Quarter 2019:
- “Buy-out” purchases were $11.3 Billion
- “Buy-in” purchases were $970 Million. This was a new record for the U.S. market.
Total “Buy-out” contracts for 2019: 501
Total of “Buy-out” purchases: $28 Billion
Boise Cascade, the Boise, Idaho based manufacturer of building materials, has purchased its third group annuity contract from Prudential Insurance Company of America. According to its 8-K filing, $19.8 million in pension assets were transferred to Prudential, representing approximately 10% of Boise Cascade’s projected U.S. qualified pension plan obligations. This is Boise Cascade’s third transaction with Prudential.
In late October, Rogers Corp., a global materials manufacturer and one of the oldest public companies in the U.S., announced the termination of its U.S., non-union, pension plan. Rogers transferred $163 Million in pension liabilities in a combination of lump-sum distributions and the purchase of a group annuity contract. In its Q3 earnings call, CFO Michael Ludwig, stated that: “As highlighted in our earnings press release the company terminated a pension plan in the fourth quarter. The pension plan was adequately funded therefore the company was not required to make additional cash contributions to fund the plan. The company will however take a $52 million to $56 million non-cash charge to income for other accumulated losses for the plan that were recorded as part of our equity.”
In October, Owens Corning, the Toledo, Ohio based manufacturer of insulation, roofing, and fiberglass composites announced the transfer of $89 Million in pension liabilities, along with $83 Million in plan assets to an undisclosed insurance company. According to Pension & Investments, the pension risk transfer affects retirees receiving monthly benefits of less than $600 per month.