Retirement Plans

Accenture Offloads Pension Liability

The deal comes as insurers are buying pension plans at a record rate.
William SprouseJune 23, 2017
Accenture Offloads Pension Liability

Accenture is transferring $1.6 billion in pension liabilities to American International Group and Massachusetts Mutual Life Insurance, according to a report. The deal includes roughly $600 million in lump-sum payments to roughly 7,000 current and former employees who chose that way of being paid and $1 billion in purchases of annuities from the insurance companies.

Concerning the annuity purchase, Accenture said today in a press release that the two insurers are each responsible for assuming a portion of the obligation to make future annuity payments to about 9,200 active and former U.S. Accenture employees and their beneficiaries. The transaction closed in late May and the insurers will assume payment responsibility in August.

The deal comes as U.S. insurers are buying pension plans at a record rate, spurred by rising interest rates and stock-market values that are at all-time highs, Reuters reports.

According to LIMRA, a life insurance industry trade group, $13.7 billion in pension transfers were finalized last year, up 1% from the year before and the second-highest annual total on record. Insurers think they can increase profits by selling companies an annuity to cover their pension costs, then investing the proceeds from those sales.

In May, Sears Holdings Corp. transferred $515 million in pension obligations to MetLife. That deal covered 51,000 retirees.

Accenture said it has a three-step strategy to reduce its pension obligations: terminate the existing plan, purchase group annuity contracts to address current obligations and then create a new plan.

“Together, these related actions have enabled Accenture to decrease its overall pension obligations by approximately $1.6 billion, reducing future risk and administrative costs, while entrusting participants’ benefits to highly rated financial institutions with core expertise in the long-term management of retirement benefits,” the company said in its release.

Accenture, a consulting and professional services firm, said it has created a new, fully funded defined-benefit plan with about $200 million in pension obligations for approximately 550 active U.S. employees eligible for benefits.

The company said yesterday that it had increased its headcount to 411,000 as of May 31, compared with about 375,000 a year ago, in response to current and projected demand for its services.

Mercer served as lead strategic and annuity-placement adviser on the liability transfer.