Late last year Seattle based Weyerhaeuser Co. contributed an additional $300 Million to its pension plan and announced its pension de-risking plans for 2019, which include the purchase of a group annuity contract. The Weyerhaeuser pension plan has assets of $5.514 billion in the U.S. and Canada, and over 70,000 participants. According to the company’s press release, the combination of lump sum payments and the group annuity contract purchase will reduce the U.S. pension liabilities by approximately 30%, and reduce the number of plan participants by 50%. The press release did not identify the insurance company that will provide the group annuity contract.
In late 2017, MetLife announced that it had lost track of some retirees. MetLife had assumed the responsibility of paying these retirees in a pension risk transfers done years ago, and disclosed that it followed a policy of trying to reach beneficiaries just twice. Once when they approached age 65, and again 5 1/2 years later when federal law required them to begin taking benefits. MetLife was charged with fraud in June 2018 by the Commonwealth of Massachusetts. The lawsuit was settled in late December with MetLife paying a $1 Million fine to Massachusetts. MetLife is making payment to the formerly “lost” annuitants with interest.
The Pension Benefit Guaranty Corporation (PBGC) will increase it’s fixed rate premium to $80 per plan participant for 2019. The fixed rate premium was just $35 in 2012. The PBGC is a federal agency created by ERISA to protect private sector pension plans. If your pension plan goes belly up, the PBGC wills step in and its insurance program will pay your pension benefits up to certain limits, depending upon your age and when your plan fails or your employer enters bankruptcy. The PBGC is funded entirely by insurance premiums from the companies its protects, assets from plans for which it serves as trustee, recoveries from former plan sponsors, and its investments. The PBGC is not funded with tax dollars.
2018 saw many pension de-risking transfers, and industry experts expect this trend to continue unabated into 2019. In fact, Bristol-Myers Squibb has already announced a $3.8 Billion transfer to Athene Annuity and Life Company for August, 2019. We will have to wait and see if that pension risk transfers tops the 2019 charts.
Some of the larger pension de-risking transfers of 2018 were:
Ball Corporation of Broomfield, Colorado – $220 Million in pension liabilities transferred, affecting 11,000 retirees.
Federal Express, Memphis, Tennessee – $6 Billion in pension liabilities transferred to Metropolitan Life Insurance Co.
Materion Corp., Mayfield Heights, Ohio – $111 Million in liabilities transferred to Mutual of America Life Insurance Company
International Paper – transferred $1.6 Billion in pension liabilities to Prudential Insurance Company of America
Devon Energy, Oklahoma City, Oklahoma – transferred $190 Million in pension liabilities
Archer Daniels Midland Company, Chicago, Illinois – transferred $500 Million in liabilities to Prudential
AK Steel, West Chester, Ohio – transferred $280 Million to Massachusetts Mutual Insurance Company
Boise Cascade Company, Boise, Idaho – Two separate transactions in 2018, one for $152 Million, and the other for $122 Million both to Prudential
In early December, 2018 the pharmaceutical giant, Bristol-Myers Squibb, announced that it was transferring $3.8 Billion of its pension obligations to Athene Annuity and Life Company, offering lump sums to certain plan participants, and terminating its US pension plan. This transfer, with an effective date of August, 2019 affects over 18,000 employees. State Street Global Advisors acted as the pension plan’s fiduciary consultant. Athene, founded in 2009, is a relatively new entrant in the pension de-risking arena. According to a press release, Athene closed six pension risk transfer transactions in 2018, totaling more than $1.8 Billion.
Are you a retiree thinking of taking an advance on your pension payments? If so, perhaps you should re-think that idea.
This is an industry replete with fraud and there are a lot of unscrupulous companies out there looking to advance some funds to you at a very high rate. Just a few months ago, the Consumer Financial Protection Bureau filed a lawsuit in federal court in California against Scott Kohn, Future Income Payments, LLC, and a variety of related entities including: FIP, LLC; BuySellAnnuity Inc.; Cash Flow Investment Partners LLC; Pension Advance LLC; Cash Flow Investment Partners East LLC; Cash Flow Investment Partners MidEast LLC; Lumpsum Pension Advance Atlantic LLC; Lumpsum Pension Advance Southeast LLC; Lumpsum Settlement West LLC; PAS California, LLC; PAS Great Lakes, LLC; PAS Northeast LLC; PAS Southwest LLC; Pension Advance Carolinas LLC; Pension Advance Midwest LLC; and Pension Loans South LLC.
The lawsuit alleges that these companies violated federal law by “representing to consumers that their pension-advance products were not loans, were not subject to interest rates, and were comparable in cost to, or cheaper than, credit card debt .” These “pension advances” sold to retirees were actually subject to interest rates that were substantially higher than credit card interest rates.
On November 1, 2018 the Ball Corporation of Broomfield, Colorado purchased a group annuity contract from an unnamed insurance company to transfer around $176 million in pension liabilities. The packing company, founded in 1880 and famous for its early production of glass jars, did not divulge the name of the insurance company or the number of retirees affected by the transfer. This is the second transfer of pension liabilities for Ball Corporation in two years. In 2017 they purchased a group annuity contract from Prudential that affected 11,000 retirees and transferred $220 million in pension liabilities. For more information on the risks associated with pension de-risking contact Edward Stone at firstname.lastname@example.org.
Mayfield Heights, Ohio material products and tech company, Materion Corporation, made a group annuity purchase on November 6, 2018 to transfer about $111 million of their U.S. pension liabilities. The transfer to Mutual of American Life Insurance Company will affect roughly 1,150 retirees and represents 43.4% of Materion’s $256 million in pension liabilities. Materion expects to fund the purchase using existing plan assets without any further cash contribution and will eliminate approximately 43% of their U.S. pension liability beginning in January of 2019. For more information on the risks associated with pension de-risking contact Edward Stone at email@example.com.
International Paper Co., purchased a group annuity contract from Prudential Insurance Company on October 1, 2018 to transfer about $1.6 billion in U.S. pension liabilities. Some 23,000 retirees, all of whom receive less than $1,000 in benefits each month, will be affected by the transfer. This is the third transfer of pension liabilities in three years for the company that employs approximately 52,000 people worldwide in more than 24 countries. Back in 2014, International Paper announced that it would freeze future benefit accruals as of December 31, 2018. International Paper’s U.S. pension plans total more than $11 billion in assets, with projected benefit obligations of $12.895 billion. As reported in Pensions & Investments, International Paper sees more pension derisking it its future.
Headquartered in Oklahoma City, Devon Energy Corporation is a Fortune 500 company and among the largest U.S. based independent producers of natural gas and oil. Earlier this month, the company disclosed its purchase of a group annuity contract to transfer around $190 million in pension liabilities to an unnamed insurance company. The transfer represents roughly 15% of their total pension liability. Devon Energy has pension assets totaling $1.035 billion with projected obligations of $1.279 billion, for a funding ration of 80.9%. It is unknown how many retirees will be affected by this pension derisking transfer. For more information on the risks associated with pension derisking contact Edward Stone at firstname.lastname@example.org.