Following the second quarter, more companies resumed addressing pension management. Among the larger transactions since then were Moog Inc., East Aurora, N.Y., entering into an agreement Sept. 16 to purchase a group annuity contract from Metropolitan Tower Life Insurance Co., transferring $481 million in U.S. pension plan liabilities, and Kellogg Co., Battle Creek, Mich., purchasing a group annuity contract in October from an undisclosed insurance company to transfer about $470 million in U.S. pension plan assets and liabilities.
Both were basic retiree liftout deals, and while those types of transactions still make up the majority of deals, there is also a significant number of full terminations.
"One of the things that plan sponsors are moving to is an environment that's more driven by plan terminations," Mr. McDaniel said. "They're looking for more certainty in costs of the ultimate termination." If it's a typical plan sponsor, "you've got $1 billion of liabilities and $900 million in assets, you go to the board and say, 'We want to terminate the plans,' that billion dollars is very much an estimate."
Because terminations can take up to a year or more from initial corporate board approval until completion, that estimate can go awry very easily in a volatile environment that sees large swings in market returns as well as interest rates.
"It doesn't take much for that liability to move 10%," Mr. McDaniel said.
He said companies are more likely to purchase a buy-in contract to lock in rates and then convert that contract to a buyout once the termination is complete.
One recent example is Boise Cascade Co., Boise, Idaho, which announced plans in August to terminate its U.S. pension plan before the end of the year.
The lumber manufacturer and distributor signed a pension buy-in contract with Prudential Insurance Co. of America on Aug. 5, with an agreement to convert it to a pension buyout following a lump-sum offer to participants. That offer closed Oct. 31 and those who selected the lump sum will receive payments around Dec. 2.
"We were fortunate that our pension asset performance and movements in the interest-rate environment early in 2020 provided us the opportunity to transfer our remaining pension obligations to Prudential without making additional cash contributions to the plan," said Wayne Rancourt, Boise Cascade's executive vice president, chief financial officer and treasurer.
The process should be completed by the end of December, "which will complete our multiyear pension plan derisking journey," Mr. Rancourt said.
This final contract is at least the fourth one Boise Cascade has purchased from Prudential. Boise Cascade in April 2018 transferred $152 million in U.S. pension plan assets to Prudential, transferred an additional $125 million to the insurance company in August 2018, and transferred another $20 million in November 2019.
Mr. Rancourt said in an August 2018 interview that the first buyout transaction covered retirees and beneficiaries with smaller monthly benefit amounts, while the second transaction covered about 420 retirees and beneficiaries with larger monthly benefits. The November 2019 transaction affected about 100 retirees, spokeswoman Lisa Chapman said at the time.