Timken Co., Canton, Ohio, has purchased a group annuity contract from Prudential Insurance Co. of America to pay future benefits for about 5,000 U.S. salaried retirees, said Philip Fracassa, executive vice president and chief financial officer.
The partial buyout for its U.S. plans will reduce plan liabilities by about $600 million. Mr. Fracassa estimated global plan assets totaled $2.1 billion at the end of 2014, following the company’s split into two separate companies, Timken Co. and TimkenSteel Corp.
Mr. Fracassa said the company “has been looking at (a buyout) for some time,” and it is the latest move for the company to protect its funded status. He said the company has contributed more than $1 billion to the plans in the last five years, and the U.S. plans in aggregate are overfunded.
Also, the company offered lump-sum payouts to new retirees in 2012, and terminated vested participants who have yet to retire in 2014.
“That was a very impactful program for us, and we have taken steps to derisk our assets. By the end of 2014, 75% to 80% of our assets were in fixed income,” Mr. Fracassa said.
Timken used State Street Global Advisors as an independent fiduciary to represent plan participants in the selection an insurance provider, he said. The selection of Prudential came following a competitive bid process.
“We solicited bids from over half a dozen very reputable insurance companies and through the process State Street, and we whittled it down,” Mr. Fracassa said.
The buyout affects U.S. salaried retirees who retired before April 2014 and plan operative retirees who worked in locations other than Canton, Ohio.
“We will continue to look for ways to manage the liabilities down over time, (but) as far as annuitization, this is the only action of this size we’re considering at present,” Mr. Fracassa added.