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Risk Management

International Paper buys group annuity covering $1.3 billion in pension liabilities

International Paper Co., Memphis, Tenn., purchased a group annuity contract from Prudential Insurance Co. of America to transfer about $1.3 billion in U.S. pension plan liabilities, the company announced in a news release Monday.

The transaction closes on Tuesday. The company said Prudential will take over the benefit payments at the end of 2017 for about 45,000 retirees and beneficiaries who receive monthly benefits of less than $450. It is the latest move for the company to derisk its U.S. plan, which will freeze future benefit accruals as of Dec. 31, 2018. In 2016, International Paper offered a lump-sum window to about 47,000 former employees who were vested participants of the Retirement Plan of International Paper Co. but had yet to retire. The former employees represented about $3 billion in pension liabilities. Of that total, about $1.2 billion was paid out to about 25,000 retirees who took the offer.

International Paper also announced earlier this year it made a $1 billion debt offering to fund a $1.25 billion contribution to the U.S. pension plan by Sept. 15. The company contributed $771 million to the plan in 2016.

As of Dec. 31, U.S. pension plan assets totaled $10.31 billion, with projected benefit obligations totaling $13.68 billion, for a funding ratio of 75.4%, according to the company's most recent 10-K filing. Also as of that date, the actual asset allocation was 51% equities, 27% fixed income, 12% other and 10% real estate.

Thomas J. Ryan, company spokesman, could not be immediately reached to provide further information.