International Paper Co. will reduce its pension liability by $1.3 billion through a pension-risk transfer, a maneuver used by companies with old-school pension plans to limit their risk by transferring responsibility to an insurance company.
The Memphis, Tenn., paper company said Monday it will buy a group annuity contract from Prudential Insurance, a subsidiary of Prudential Financial Inc. In turn, the insurance company will assume responsibility for pension benefits and annuity administration for about 45,000 former International Paper employees and beneficiaries.
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The move will reduce International Paper's $14 billion in U.S. qualified pension plan liabilities by about 9%. The company expects the transaction to close this week.
International Paper said the deal won't change benefits for any plan participant. The company said Prudential will be administering benefits for former employees and beneficiaries who receive less than $450 in monthly payments.
The company expects to incur a $400 million pension-settlement expense in the fourth quarter related to the transaction.
Pension-risk transfers, which have become increasingly common, allow companies to limit their exposure to the volatility of stock and bond markets and interest rates. While Prudential has led the insurance industry with high-profile pension-risk deals, MetLife Inc. and smaller insurers have also gotten involved.
Prudential said it makes more than $10 billion in pension payments to more than 1 million retirees and their beneficiaries each year. Other companies who have transferred obligations to Prudential include General Motors Co., Verizon Communications Inc., Kimberly-Clark Corp. and J.C. Penney Co.
International Paper employs about 55,000 people. Shares in the company, up 7% so far this year, were inactive in premarket trading.
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(END) Dow Jones Newswires
October 02, 2017 08:52 ET (12:52 GMT)