Sears, MetLife Ink Deal to Annuitize $515M of Pension Liability

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Carmen Castro-Pagan

Sears Holdings Corp., in an effort to unload some of the risk of its underfunded pension plan, entered into an agreement with Metropolitan Life Insurance Co. to annuitize $515 million of Sears’ pension liability.

Under the agreement announced May 23, MetLife will pay future pension benefits to approximately 51,000 retirees. The action is expected to have an “immaterial impact on the funded status” of the retailer’s pension obligations, but it will serve to reduce the size of the company’s pension plan, future cost volatility, and administrative expenses, Sears said.

As of March, Sears’ pension plan had $3.57 billion in assets and its pension obligations were $5.17 billion, according to the company’s latest financial filings. The plan is 69 percent funded.

In recent years, Sears has been active in making cash contributions to its pension plan. Since fiscal year 2013, Sears has contributed more than $1.5 billion to the plan, according to company data on the Bloomberg Terminal.

In efforts to increase profits, Sears and other major retailers, including Macy’s Inc. and J.C. Penney Co., have announced store closures, layoffs, and early retirement packages. In 2015, J.C. Penney reached an agreement with Prudential Insurance Co. of America to transfer more than $1.5 billion in assets to settle a portion of its pension liabilities. Earlier this year, J.C. Penney offered a voluntary early retirement program to 6,000 full-time employees.

One of the trends in 2016 was for major employers to de-risk their pension plans by purchasing annuity contract groups, according to a recent study by pension consultant Milliman.

In June, MetLife, along with Mass Mutual Life Insurance Co., agreed to take on $1.6 billion in pension liabilities from Pittsburgh-based PPG Industries Inc.

Other major companies that have engaged in similar transactions include WestRock ($2.5 billion), United Technologies ($1.6 billion), Hewlett Packard ($1.3 billion), Verizon ($1.3 billion), International Paper ($1.2 billion), and Pepsi ($1 billion).

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Try Pension & Benefits Daily