It looks like both Motorola and Bristol-Myers Squibb (BMS) will be transferring significant portions of their defined benefit pension plans liability to Prudential Insurance. Both buyouts were announced this week – and are expected to be completed in December.
The Motorola plan buyout will be the third largest in the United States (following the 2012 pension buyouts by Detroit-based General Motors and New York-based Verizon) – shifting about $3.1 billion in pension benefit liabilities for 30,000 Motorola retirees to a Prudential group annuity plan. Motorola also is offering to cash out about 32,000 former employees who have not started receiving pension benefits with lump sum benefit payments. The buyout and the lump sum agreements are expected to cut Motorola’s pension liability in half – to about $4.2 billion. The BMS buyout will settle $1.4 billion in pension obligations for about 8,000 retirees and their beneficiaries.
Both plans will continue to maintain the pension plans for remaining participants. In conjunction with the buyout, Motorola announced that it would pump $1.1 billion into what remains of the plan – which will continue to cover about 40,000 participants. The smaller BMS plan will continue coverage for about 27,000 participants.
Motorola indicated that the action is related to the sale of its enterprise businesses – which shrinks the company significantly. Both pension buyouts, however, are clear illustrations of employers’ efforts to eliminate the financial burden and volatility of pension liabilities associated with defined benefit plans. In announcing the buyouts, both companies recognized the logic in having financial institutions with expertise in managing plan assets and the varying costs and benefit liabilities take on responsibility for their pension plans.
The trend is not limited to the United States. As highlighted by the sizable buyout of UK-based ICI Pension Fund earlier this year, pension de-risking strategies are trending in the UK as well. Key, in both countries, is that plan sponsors properly navigate the fiduciary and other legal requirements as they proceed down this road.