In a move protecting its defined benefit pension promise for the long haul, commercial vehicle manufacturer Navistar Canada is purchasing more than $300 million in group annuity contracts.
The transactions are with RBC Insurance and iA Financial Group and valued at $333 million. From May 1, 2019, the insurers will be responsible for administering pension payments to more than 1,700 of Navistar’s retirees and beneficiaries.
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“These transactions continue our objective to de-risk the balance sheet and manage future pension obligations, while retirees and their beneficiaries will receive equivalent pension benefits from highly rated insurance companies, who have strong expertise in long-term management of retirement benefits,” said Walter G. Borst, executive vice-president and chief financial officer at Navistar International Corp., in a press release.
Navistar’s two DB pension plans in Canada were closed to new members and very mature, so transferring the liabilities and the underlying assets of these retirees helps the company reduce its DB footprint, says Benoit Labrosse, vice-president of asset and risk management at Morneau Shepell Ltd.
The firm worked with Navistar to develop its de-risking strategy, which led to the bulk annuity transaction. “We have helped them work through the data issues, through the actuarial issues, as well as some of the investment issues related to this transaction,” says Labrosse.
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Benefits are now protected under Assuris instead of their previous protection under the Pension Benefits Guarantee Fund, noted Navistar in the release. “There’s the financial solidity of these insurers that are backing the pension and, beyond that, should one of these two insurers fail, then the Assuris coverage would kick in,” says Labrosse.
The transactions come after years of increasing interest from Canadian plans in purchasing group annuities on behalf of retirees, he notes, highlighting the timing of this announcement is particularly exciting. “We started the year with a bang, with a large transaction in January. That has not happened too often in the past.”
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