Retirement Plans

International Paper Transfers Pension Risk

The purchase of a $1.3 billion annuity contract from Prudential will allow IP to reduce its pension liability by about 9%.
Matthew HellerOctober 2, 2017

International Paper said Monday it will transfer $1.3 billion, or about 9%, of its pension liability to Prudential Insurance in another move to de-risk its pension plan.

The packaging, pulp and paper producer will acquire a group annuity contract from Prudential in return for the insurer taking over the benefit payments at the end of 2017 for about 45,000 retirees and beneficiaries who receive monthly benefits of less than $450.

As of Dec. 31, International Paper’s U.S. pension plan assets totaled $10.31 billion, with projected benefit obligations totaling $13.68 billion, for a funding ratio of 75.4%, according to the company’s most recent 10-K filing.

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“First and foremost we are committed to ensuring our retirees’ benefits are secure and maintained. This transaction achieves that goal, while at the same time enabling International Paper to better manage future costs associated with our pension plan,” CFO Glenn R. Landau said in a news release.

As The Wall Street Journal reports, pension-risk transfer, which have become increasingly common, are used by companies with old-school pension plans to limit their exposure to the volatility of stock and bond markets and interest rates.

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, Verizon Communications, Kimberly-Clark, and J.C. Penney.

International Paper’s pension plan will freeze future benefit accruals as of Dec. 31, 2018. It previously moved to de-risk the plan in 2016 by offering a lump-sum window to about 47,000 former employees who were vested participants in the plan but had yet to retire.

Those former employees represented about $3 billion in pension liabilities. Of that total, about $1.2 billion was paid out to about 25,000 retirees who took the offer.

International Paper also announced earlier this year it made a $1 billion debt offering to fund a $1.25 billion contribution to the U.S. pension plan by Sept. 15. The company contributed $771 million to the plan in 2016.