Verizon Pension Buyout Benefits Business, Retirees

October 19, 2012 (PLANSPONSOR.com) – The low interest rate environment made it the right time for Verizon to transfer some pension risk, a company spokesman told PLANSPONSOR.

“The reason we decided to do the pension transfer is because it will increase our long-term financial strength and allow us to better focus on our core business of building and managing communications networks,” he said. “At the same time it ensures that these pension obligations remain in safe and trusted hands.”  

Peggy McDonald, senior vice president and actuary at Prudential Retirement—the company which signed an agreement with Verizon Communications Inc. to transfer approximately $7.5 billion of the Verizon Management Pension Plan obligations to Prudential (see “Verizon Signs Partial Pension Buyout Deal”)—said that is the common desire of the plan sponsors it is working with, “to focus more attention on their core business and less on the business of managing pension risk, while keeping their promise to provide retirement security to plan participants.”  

McDonald told PLANSPONSOR that Prudential has more pension risk transfers in the pipeline “from a wide variety of plan sponsors—from small to jumbo in terms of size, from many different industries and from both active and frozen plans.” 

As far as the timing of the deal, the Verizon spokesman said the company has been evaluating for a while ways to better understand, manage and predict its long-term pension costs. “Given that the Federal Reserve has indicated interest rates will remain low into 2015, the timing was right to remove some of our risks associated with this volatility,” he stated.  

McDonald believes as plan sponsors become more familiar with these types of transactions, they will understand the economic value of transferring the investment and longevity risk associated with pension liabilities to a company, such as Prudential, for whom management of these risks is a core competency. “We see a trend emerging now that we expect to develop into a robust pension risk transfer market,” she said.  

Prudential signed the nation’s first pension buy-in deal last May with Hickory, North Carolina-based Hickory Springs Manufacturing Company (see “Pru Completes Nation’s First Pension Buy-In”). Since then, a number of companies have announced pension risk transfer moves (see “Another Company Offering Lump Sums to De-Risk Pension”).