Consumer products giant Kimberly-Clark is the latest defined benefit pension sponsor to transition significant pension liabilities to the insurance industry. That trend may accelerate due to the prospect of higher pension costs attributable to increasing life expectancy reflected in the Society of Actuaries’ new mortality tables, and rising PBGC premiums.

On Monday the company announced it is offloading about $2.5 billion in liabilities for 21,000 retirees to Prudential and MassMutual in a transaction that takes effect June 1.

Another 4,000 retirees are not impacted by the transaction, and about 25,000 active employees who have accrued benefits under the plan, which was frozen in 2010, also are not impacted.

Prudential will administer the new arrangement, although it shares equally in shouldering the funding obligation with MassMutual. Payments to Prudential and MassMutual to assume that liability will be funded by existing K-C pension assets, and between $400-$475 million in future contributions to the plan to be funded by borrowing.

K-C closed its pension to new hires in 1997 prior to freezing it in 2010. The company has approximately 42,500 active employees today, a company spokesman said.

Fiduciary green light

K-C had hired State Street Global Advisors (SSgA) to act in a fiduciary capacity to “represent the interests of the impacted retirees,” the according to K-C.  SSgA’s analysis concluded that Prudential and MassMutual were most capable of taking on the pension obligation.

Paying annuity providers to assume pension obligations is not new, but the pace may pick up, according to a recent survey by Aon Hewitt. Of the 83 DB plan sponsors participating in the poll, 21% “are considering buying annuities for a portion of their plan participants,” according to the firm.

“Settlement strategies may be an appropriate approach for well-funded DB plans so that pension plan sponsors are able to honor the retirement benefits promised to participants, while also considering the long-term financial outlook of the plan,” said Ari Jacobs, head of Aon’s “global retirement solutions” division.

Additional survey highlights:

  • 22% are “very likely” to offer terminated vested participants a lump sum window in 2015,
  • 19% plan to increase cash contributions to reduce PBGC premiums,
  • 45% have conduced an asset-liability study recently and 25% are “somewhat” or “very” likely to conduct one in 2015, and
  • 18% conducted a mortality study last year, while 10% plan to do so this year.

Of all the DB sponsors surveyed, only 35% are still keeping the plan open to new hires, whereas 34% have closed the doors to new hires and 31%, like K-C, have frozen their plan.
Richard Stolz is a freelance writer based in Rockville, Maryland.

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