International Paper has said that it will settle about $1.6bn of its pension obligations by purchasing a group annuity contract from Prudential Financial's subsidiary The Prudential Insurance Company of America.


Image: Scott Kaplan, Head of Pension Risk Transfer, Prudential. Photo: Courtesy of Business Wire.

As part of this agreement, Prudential will assume the responsibility for paying pension benefits to about 23,000 of International Paper’s retirees.

This agreement is the second pension risk transfer between the two companies in just over a year. Last October, International Paper agreed to transfer approximately $1.3bn of its pension liabilities to Prudential, an agreement covering 45,000 of International Paper’s retirees.

Such agreements reflect a growing desire among companies to take active steps to reduce the risks, costs and liabilities associated with running a defined benefit pension plan. In the last two years, pensions have generally become better funded because of rising asset prices and interest rates.

Stronger funding levels put companies in a better position to consider pension risk transfer as a solution for addressing their pension obligations. When choosing to transfer pension risks, companies are seeking shelter from the increasing costs and substantial risks of market volatility and longevity increases.

Prudential Retirement managing director and new business head Glenn O’Brien said: “We are proud that Prudential has again been chosen to help secure and maintain the retirement benefits of International Paper’s retirees. International Paper is entrusting its pension promises to a company with deep experience in managing retirement benefits, and we are committed to providing these retirees with a seamless transition.”

Prudential pension risk transfer head Scott Kaplan said: “As a leader in pension risk transfers, Prudential is able to leverage its investment capabilities, its actuarial expertise and its strong balance sheet in ways that help companies reduce their risks and enable them to focus on their core operations.

“Equally important, Prudential is fundamentally committed to keeping its promises to these retirees and their beneficiaries.”

Since 1923, Prudential has offered pension solutions to companies and organizations. Prudential currently makes more than $10bn in pension payments to more than 1 million retirees and their beneficiaries annually.

Prudential is the global leader in pension risk transfer solutions. This agreement with International Paper follows several other prominent transactions, including those with General Motors, Verizon, Motorola, Bristol-Myers Squibb, The Hartford, Kimberly-Clark, Raytheon and JCPenney.

Source: Company Press Release