Pension risk transfer activity shows no signs of abating as corporations make final derisking moves of the calendar year, with some doing second or third transactions in the favorable economic environment.
A flurry of disclosures appeared at the beginning of November in third-quarter earnings filings with the Securities and Exchange Commission, revealing some companies are shedding the majority of the pension liabilities of their retirees through group annuity purchases from insurance companies. The trend in the last several years has been to transfer only the liabilities of retirees and beneficiaries who receive low monthly benefits.
Archer Daniels Midland Co., Chicago, is the highest-profile new entry to the pension buyout market, having closed on Nov. 2 the purchase of a group annuity contract from Prudential Insurance Co. of America. That transaction affected the 3,800 retirees and beneficiaries who began receiving benefit payments on or before Jan. 1, 2018, spokeswoman Paula Heinkel said in an email.
About $500 million in U.S. pension liabilities were shed in the deal, a significant portion of the $3.1 billion in total pension plan liabilities that ADM reported as of Dec. 31, 2017, in its most recent 10-K filing. ADM had $2.448 billion in assets as of that date, for a funding ratio of 78.7%.
"I think it remains a robust market with a strong level of demand from plan sponsors and reasonable supply from insurance companies," said Matt Herrmann, St. Louis-based leader of the retirement risk management group at Willis Towers Watson, in a telephone interview.
A recent LIMRA Secure Retirement Institute sales survey projected $23 billion in group annuity sales in 2018, equal to the prior year's reported volume. Companies have traditionally made the most transactions during the fourth quarters of their calendar years. In 2017, for example, of the $23 billion in transactions, $11.1 billion took place in the fourth quarter.
Other notable transactions disclosed in recent SEC filings were:
- AK Steel Corp., West Chester, Ohio, purchasing a group annuity contract from Massachusetts Mutual Life Insurance Co. to transfer about $280 million in pension liabilities, the third such transaction for the company, having completed two buyouts with an undisclosed insurance company in 2016.
- TJX Cos., Framingham, Mass., purchased a group annuity contract from an undisclosed insurance company to transfer $207 million in U.S. pension plan liabilities.
- Devon Energy Corp., Oklahoma City, purchasing a group annuity contract from an undisclosed insurance company to transfer about $190 million of its pension plan liabilities.
- Materion Corp., Mayfield Heights, Ohio, purchasing a group annuity contract from Mutual of America Life Insurance Co. to transfer about $111 million in U.S. pension liabilities, representing 43.4% of total liabilities.