U.S. insurers sense opportunity in unwanted pension plans

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By Suzanne Barlyn | NEW YORK

NEW YORK U.S. insurers are buying corporate
pension plans at a record clip as rising interest rates and
all-time high stock-market values give companies the perfect
excuse to offload them.

Calculating they can make more money from selling companies
an annuity to cover the cost of the pension plans and then
invest the proceeds in bonds and other securities, insurers are
competing to persuade corporate America to sell them their
pension risk.

These deals, known as pension risk transfers, have been
around for at least 90 years, but they can be limited by a Catch
22: in good times, corporate leaders feel less of a need to rid
their companies of pension burdens, and in bad times it is more
expensive to do so.

“There’s a huge opportunity for the insurance industry,”
said Ellen Kleinstuber, who advises pension-plan sponsors as an
actuary for CBIZ Inc.

Last week, Prudential Financial Inc, the biggest
player in pension transfers, said it had finalized $2.2 billion
in pension deals during the fourth quarter, including a $1.8
billion deal with United Technologies Corp.

Other large insurers, including MetLife Inc and
Principal Financial Group Inc are also competing for
hefty pension deals as smaller insurers jockey for a slice of
the market.

With so much competition, many pension consultants expect
2017 to be a strong year for pension deals. Pension transfers
totaling $8.1 billion were finalized in the first nine months of
2016, according to LIMRA, an industry trade group. The number of
deals hit 225, the highest in more than 25 years.

“It’s really unstoppable now,” said Scott McDermott, a
managing director at Goldman Sachs Asset Management who
advises companies on pension issues.

UNDERFUNDED

Pension transfers have been kicking around the insurance
industry since the Cleveland Public Library unloaded its pension
to Prudential in 1928.

Prudential is still making payments to two of those
employees, ages 100 and 103, a spokesman said.

The biggest driver of the trend in recent years is the
growing number of companies that are deciding to end their
plans, McDermott said.

As retirees live longer and the legal and financial cost of
maintaining pensions rise, corporations are keen to jettison
them.

The problem for companies looking to offload is that the
pension plans must be fully-funded before they can sell them.
GM, for example, had to inject more than $2.8 billion into its
pension before closing a 2012 transfer to Prudential. It also
paid Prudential a $2.1 billion fee for taking on the assets.

GM’s current U.S. pension plan that is still held by the
company is underfunded by $7.2 billion.

Surging stock markets and rising interest rates are making
it easier for companies to replenish their pension plans but
there are still gaps. The average corporate pension fund was 82
percent funded as of Jan. 31, according to Mercer Investment
Consulting.



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