Retirement Plans

J.C. Penney Cuts Pension Plan Liability by Up to 35%

The retailer has completed a lump-sum offer to retirees and will annuitize other obligations through a deal with Prudential.
Matthew HellerOctober 2, 2015

In moves to reduce its $5 billion pension obligations, J.C. Penney announced Friday that about 12,000 of its retirees have accepted a lump-sum offer and it has reached an agreement with Prudential Insurance to buy annuities for other retirees.

The lump-sum offer was to plan participants who began receiving benefits between Jan. 1, 2000, and Aug. 31, 2012. Approximately 1,900 former employees who have deferred vested benefits also elected to receive voluntary lump-sums.

Under the group annuity contract with Prudential, the insurer will pay and administer future benefit payments to 43,000 retirees, settling a substantial portion of J.C. Penney’s remaining pension benefit obligation.

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“The actions announced today should reduce the pension obligation by 25-35% and the number of participants in the [pension] plan by 25-35%,” the company said in a news release. “Although the plan has been fully funded since 2009, owing to successful execution of the Company’s asset de-risking strategy, market conditions were favorable to reduce the obligation now.”

As Dow Jones reports, the retailer is joining “a host of other companies moving to unload some of their future pension liabilities to insurers. To companies, it is a way to hedge against potentially dour investing returns or a surge in costs; for insurers, it is a quick way to add billions of dollars in assets.”

Last year, for example, Motorola Solutions shifted the pension responsibilities for 30,000 retirees to Prudential, transferring about $3.1 billion in U.S. pension liabilities.

J.C. Penney previously made a lump-sum offer in the fall of 2012 to about 35,000 former vested employees who had yet to retire as of that date. About 25,000 of those participants elected to take the lump sum, and the company made a total of $439 million in payments in December 2012.

The new lump-sum offer and the Prudential agreement “further the company’s objective of de-risking the plan while improving the company’s long-term risk profile,” J.C. Penney CFO Ed Record said.