(Bloomberg) — Prudential Financial Inc. won a $2.5 billion pension-risk transfer deal with paper and packaging company WestRock Co., cementing the insurer’s status as the biggest player in the business of taking on retirement obligations for employers.
WestRock will purchase a group annuity that requires the insurer to take on responsibility for payments owed to 35,000 U.S retirees and their beneficiaries, the companies said Thursday in a statement.
Prudential in recent years has taken on commitments held by giant companies such as General Motors Co. and Verizon Communications Inc. The transactions give the Newark, N.J.-based company billions of dollars in assets to manage. While a financial risk of pension obligations is that retirees survive longer than expected, Prudential has said it is well equipped to handle that possibility because it also offers traditional death-benefit policies that are most profitable when life expectancy is high.
“The pension risk transfer deals that we’ve done have performed very well,” Prudential Vice Chairman Mark Grier said in a conference Thursday before the WestRock agreement was announced. “The fact that we’ve had some of these deals on the books for three years or more is starting to validate the things that we said about the attraction of the business.”
WestRock will reduce its U.S. pension obligations by about 40% in the deal, according to the statement, which didn’t disclose terms. The company said it doesn’t expect to make additional cash contributions into the plan as part of the transaction.
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The transfer will help WestRock with “managing future pension cost and risk, benefiting participants remaining in the plan while entrusting certain retirees’ and their beneficiaries’ pensions to a financially strong and secure institution with expertise in the long-term management of retirement benefits,” Ward Dickson, chief financial officer of the Norcross, Georgia-based paper company, said in the statement.
Mercer was lead strategic adviser on the deal for WestRock, which also received help from the asset-management arm of Goldman Sachs Group Inc. and law firms Covington & Burling LLP and Mazursky Constantine LLC.
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