J. C. Penney says it will reduce its US$5 billion pension benefit obligation by up to 35% without requiring any cash contributions from the company.
The retailer has recently completed a lump-sum offer for select participants in its pension plan and also entered into an agreement with Prudential to purchase a group annuity contract that will settle a substantial portion of the company’s remaining retiree pension benefit obligations.
“These actions not only continue to provide excellent benefit security for our retirees, but also further the company’s objective of de-risking the plan while improving the company’s long-term risk profile,” says J.C. Penney CFO Ed Record.
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About 12,000 retirees and surviving beneficiaries elected to receive voluntary lump-sum payments to settle the plan’s pension obligation to them. In addition, about 1,900 former employees who have deferred vested benefits elected to receive voluntary lump sums.
In conjunction, the retailer has entered into a definitive agreement to purchase a group annuity contract from Prudential, under which Prudential will pay and administer future benefit payments to select retirees. The agreement provides for the plan to transfer a portion of its obligations and assets to Prudential.
The annuity transaction is expected to close in December 2015, and its final size is subject to the condition that the plan remains overfunded at closing. If market conditions warrant, closing may be extended to 2016. After closing, Prudential will assume financial responsibility for making the annuity payments as provided in the group annuity contract.
Although the plan has been fully funded since 2009, J.C. Penney says “market conditions were favourable to reduce the obligation now.”
A number of companies, including Motorola Solutions and Bristol-Myers Squibb, have shifted their pension risks in the past year.
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