Prudential Financial announced a deal last week to take on nearly $1 billion in pension obligations from a major defense technology company.
By transferring liabilities to a group annuity contract, the agreement relieves Raytheon Company of $923 million in retirement benefits owed to nearly 13,000 U.S. retirees and their beneficiaries. The pensioners were once employees of Raytheon operations that have since been discontinued.
“Prudential is a unique player in the pension risk transfer market, a market that it helped create. Our pension and actuarial expertise, along with our investment capabilities and deep financial resources, help our clients reduce pension risks while allowing them to focus on their core businesses,” Scott Kaplan, Prudential’s head of Pension Risk Transfer, said in a statement.
A day before the pension announcement, the Massachusetts-headquartered weapon maker reported second quarter 2018 net sales of $6.6 billion, up from $6.3 billion this time last year, as well as “strong bookings, sales growth, EPS and cash generation.”
The transfer of at least some pension obligations to insurers is nothing new and unlikely to slow anytime soon.
Prudential paid $11 billion in benefits to more than 1.3 million retirees and beneficiaries last year. The New Jersey-based company attributes the growing trend in-part to the rising costs and risks associated with maintaining large plans.
Industry experts echo that sentiment, pointing to impending market volatility and swelling interest rates, in addition to incentives introduced by the new tax law.
Shortly after the Raytheon deal went public, an op-ed revealing the sad state of the government’s private pension plan insurer, the Pension Benefit Guaranty Corporation, was published in The Western Journal.
“According to new data from the Pension Benefit Guaranty Corporation, multiemployer pension plans’ unfunded promises totaled an all-time high of $638 billion in 2015 (the most recent year available). That’s $638 billion the plans promised to pay their workers as part of their compensation but did not set aside to actually pay them,” wrote Rachel Grezler, a research fellow at the Heritage Foundation.
“Particularly troubling is the fact that of the 10.3 million workers and retirees who have multiemployer pensions, 96 percent of them are in plans that have less than 60 percent of the funds necessary to pay promised benefits. This could not happen to workers with defined contribution 401k or individual IRA retirement accounts that they own.”