In completing a pension buy-in transaction, a rare move for U.S. corporations, Lockheed Martin Corp. has opened the door for others to follow as corporate pension fund executives look for ways to reduce risk in their defined benefit plans, industry observers said.
The Bethesda, Md.-based defense and aerospace company announced Jan. 29 it had completed two group annuity purchases to reduce risk in its U.S. defined benefit plans, which as of Sept. 30 had $35.2 billion in assets.
The first was a traditional buyout, transferring the responsibility to pay benefits for about $1.6 billion in U.S. pension plan liabilities to Prudential Insurance Co. of America. Buyouts have been a relatively common transaction in the U.S. since 2012 when General Motors Co., Detroit, transferred $29 billion to Prudential.
The second was a buy-in transaction. Lockheed Martin purchased an $810 million group annuity contract from Athene Annuity and Life Co., which will reimburse Lockheed Martin for benefit payments the plan will make to its retirees and beneficiaries. Both transactions took place in December.
John Mollard, vice president and treasurer at Lockheed Martin, said in a telephone interview that the process began with the company's $5 billion in contributions to its pension plans in 2018.
Motivated by the passage of the Tax Reform and Jobs Act, which dropped the corporate tax rate to 21% from 35%, Mr. Mollard said the company decided to accelerate its contributions to take advantage of the higher tax deduction that was set to expire Sept. 15, 2018.
The discretionary contribution allowed the company to have enough total assets available compared to its $43 billion in U.S. DB plan liabilities to make the cost of the transactions palatable.
"Now we can make transactions without having any sort of impact on our income statement or operating cash flows," Mr. Mollard said of the company's strategy once the contribution was made. "If we're ever going to start putting our toe in the water and start going out on the (pension risk transfer) market, now would be a good time to start."