AT&T Inc., Dallas, is seeking to contribute a preferred equity interest in its wireless business, valued around $9.5 billion, to its pension plans to significantly strengthen the funded status, according to an 8-K filed Friday.
The company has filed an application with the Department of Labor requesting an exemption on prohibited transactions to make the contribution.
The preferred interest will also entitle AT&T’s pension plans to receive cumulative cash distributions of about $560 million a year, which represents about 11% of the plans’ annual cash flow requirements to pay benefits, according to the filing. The company originally estimated contributing $300 million to the pension plans in 2013.
Under the proposal, AT&T has the right to purchase the preferred equity either after the pension plans are fully funded or five years from the contribution date.
The proposal creates a new class of preferred equity in AT&T Mobility II LLC, the holding company for AT&T’s wireless business. All equity is now held by AT&T’s wholly owned subsidiaries.
Brock Fiduciary Services was hired by AT&T to serve as independent fiduciary and investment manager with respect to the transactions covered by the exemption requested and will have investment discretion in the holding of the equity.
AT&T is looking to obtain DOL approval before the end of 2013.
If the proposal is approved by the DOL, the pension plans would have to earn 8% annually to pay off historic annual benefit payments without liquidating additional assets, compared to at least 9.3% before the contribution.
The Communications Workers of America, one of the unions representing AT&T employees, said in a statement that it was “pleased to see that AT&T is taking steps to further strengthen its defined benefit pension fund. Retirement security is a critical issue for working families, and AT&T’s action means a strong future for the fund.”
As of Dec. 31, the pension plans had $45.9 billion in assets and $56.1 billion in liabilities for a funded status of 81.8%.
Mark Siegel, spokesman for AT&T, did not respond to requests for interviews with executives.