United Technologies (UTC) has announced two moves intended to reduce its pension liabilities by $1.77 billion.
The Hartford, Connecticut-based company said Thursday that it had agreed to transfer approximately $775 million of outstanding benefit obligations to Prudential. The deal, expected to close on October 12, covers roughly 36,000 retirees and beneficiaries currently receiving $300 per month or less from UTC’s pension plans.
“This transaction is an important part of United Technologies’ long-term strategy to reduce future pension risk and expense,” said CIO Robin Diamonte. “It will not affect participants remaining in the plans and entrusts the assets leaving the plans to a highly rated insurance company whose core business is retirement security and administration of pension benefits.”
The second piece of the de-risking initiative is a program offering certain former US employees and beneficiaries the option to take a one-time lump sum instead of future monthly pension payments.
UTC said it expected about 10,000 plan participants to take the offer, which will be paid out late this year. According to this estimation, the lump sum program will reduce UTC’s pension benefit obligations by $995 million by the year’s end.
Both pension-risk transfers and lump sums have become more common among corporate pensions as Pension Benefit Guarantee Corporation premiums skyrocket, making underfunded pensions costlier than ever.
According to an NEPC poll earlier this year, 32% of plan sponsors were considering lump sum payouts, while 17% cited interest in a partial risk transfer.
Most recently, packaging company WestRock transferred $2.5 billion in pension obligations, also to Prudential.
Related: Prudential Wins $2.5 Billion Risk Transfer & Corporate Pensions Seek Protection Against PBGC Hikes