U.S. insurers sense opportunity in unwanted pension plans
U.S. insurers are buying corporate pension plans at a record clip as rising interest rates and all-time high stock-market values give companies the perfect excuse to offload them.
Calculating they can make more money from selling companies an annuity to cover the cost of the pension plans and then invest the proceeds in bonds and other securities, insurers are competing to persuade corporate America to sell them their pension risk.
These deals, known as pension risk transfers, have been around for at least 90 years, but they can be limited by a Catch 22: in good times, corporate leaders feel less of a need to rid their companies of pension burdens, and in bad times it is more expensive to do so.
The problem for companies looking to offload is that the pension plans must be fully-funded before they can sell them. GM, for example, had to inject more than $2.8 billion into its pension before closing a 2012 transfer to Prudential. It also paid Prudential a $2.1 billion fee for taking on the assets.
GM’s current U.S. pension plan that is still held by the company is underfunded by $7.2 billion.
Surging stock markets and rising interest rates are making it easier for companies to replenish their pension plans but there are still gaps. The average corporate pension fund was 82 percent underfunded as of Jan. 31, according to Mercer Investment Consulting.. ..cont’dglinda, xynthee, slipslidingaway and 1 othersnot like this
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