Verizon To Transfer $7.5 Billion In Pension Benefits Through Annuity Purchase

In another corporate move to reduce pension liability risk, Verizon Communications Inc. said Wednesday that it is buying a group annuity to provide benefits to about 41,000 Verizon management retirees.Under the arrangement, Verizon will transfer about $7.5 billion in pension plan obligations to Prudential Insurance Co. of America by purchasing the annuity. The agreement covers plan participants who retired and began receiving pension benefits before Jan. 1, 2010. Verizon will contribute about $2.5 billion to the plan in connection to the transaction.“The transaction is expected to further Verizon’s objective of derisking the pension plan while improving the company’s longer-term financial profile,” New York-based Verizon said in a statement.Verizon’s move follows that of  General Motors Co., which earlier this year said that it would purchase a group annuity — also from Prudential — to cover benefits of tens of thousands of participants in its pension plan for salaried employees.“The size of the pension settlement actions announced in 2012 is redefining the market,” Ari Jacobs, senior partner and global retirement solutions leader at Aon Hewitt in Norwalk, Conn., said in a statement.“In the U.S., the entire volume of pension liabilities annuitized in recent years has been about $1 billion per year and no single transaction has exceeded $1 billion since the 1980s,” Mr. Jacobs said. “The transactions by Verizon and GM are orders of magnitude larger than this and likely to be important in the continuing trend in pension derisking and settlement strategy.”Aon Hewitt served as Verizon’s lead strategy partner in the transaction.%%BREAK%%Earlier, experts said more employers will take such actions. Through purchasing an annuity and transferring the benefit obligations to an insurer, employers will save on costs such as premium payments to the Pension Benefit Guaranty Corp., as well as fees and costs associated with offering and administering their pension plans.In addition, employers taking such actions no longer will be exposed to fluctuating interest rates and investment results that can cause major changes in their pension plans costs and contributions.

Editor’s Note: Can a GASB 45 liability be transferred to an annuity? Or a group annuity with various political subdivisions participating through an Interlocal Agreement?

Mercer Report – Annuity Based Funding