Coca-Cola Co. is gaining control over its pension liabilities through a new program that reinsures some of those obligations through its Ireland captive insurer, the beverage company's risk manager said.
“This is currently our most innovative process,” said Laurie Solomon, Atlanta-based Coca-Cola's director of risk management, speaking March 16 at the Business Insurance Risk Management Summit in New York. Several weeks ago, she said, Coca-Cola Reinsurance Services Ltd., the company's Dublin-based captive, began reinsuring annuity products written by a fronting insurer to fund pension commitments in Ireland and the United Kingdom.
The arrangement, which Coca-Cola expects to expand, is the first to be established in Ireland and is believed to be only the second such program in existence, said Stacy Apter, senior global benefits consultant with Coca-Cola. A similar program was put in place by a large energy organization in Europe, she said after her presentation at the conference.
Coca-Cola Reinsurance reinsures around $400 million in annuities written by insurers under the arrangement, Ms. Apter said. Pension obligations in another European country are expected to be covered by the program soon, she said.
(According to the company's most recent 10-K filing, it had $4.1 billion in U.S. pension assets and $1.4 billion in non-U.S. assets at year end 2010, with accumulated benefit obligations totaling $6.95 billion.)
Gaining control over Coca-Cola's pension liabilities was a big motivation in structuring the arrangement, Ms. Apter said.
In the U.K. and Ireland, Coca-Cola's pension plans were run by third-party trustees, which meant the beverage maker did not have complete control over the programs' policies and investment strategies, Ms. Apter said.
“Our philosophy is fully funded plans,” she said. “We are a cash-rich organization, so we want to use the assets to cover the obligations rather than have debt sit on our balance sheets. But if you fund up too much in a plan where the company doesn't have control, then you risk building up surplus” that the trustees can use to enhance benefits, she said.
“Not that we wouldn't want to give enhanced benefits,” Ms. Apter said, but that's a decision that Coca-Cola would want to make rather than having an external trustee “make that decision for us.”
Ireland's pension regulators were enthusiastic about the arrangement, Ms. Apter said, because a company the size of Coca-Cola was making a commitment to guarantee pension payments it would owe to workers in the country.
“The idea that we were fully funding a pension plan — they thought that was a fantastic idea,” she said.
Michael Bradford is a senior editor with Business Insurance, a sister publication of Pensions & Investments.