Avery Dennison Transfers $750 Million in Pension Obligations

Deal with AIG covers 8,500 members of plan terminated in July 2018.

Adhesives manufacturer Avery Dennison Corp. has signed a deal to transfer approximately $750 million of pension obligations to AIG’s American General Life Insurance Co. The agreement covers approximately 8,500 retirees, beneficiaries, and deferred and active members.

In July 2018, Avery Dennison’s board of directors decided to terminate its US defined benefit plan effective Sept. 28, 2018.  In an SEC filing disclosing the decision, the company said the pension plan was underfunded by an estimated $240 million on a plan termination basis. The company said it would borrow commercial paper to contribute $200 million in cash to the plan the following month.

In March, the company contributed approximately $7 million in cash to the pension plan during the first quarter of 2019 to cover costs associated with the settlement of the liabilities.

The company made good on its promise to contribute $200 million to the plan in August 2018, and during the fourth quarter of 2018, Avery Dennison settled approximately $152 million of its US pension plan liability through lump-sum payments from existing plan assets to eligible participants who elected to receive them.

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According to a report from MetLife, a “significant portion” of the more than $3 trillion of defined benefit plan liabilities that have not yet been derisked will be transferred over the next decade. And in its Pension Risk Transfer Poll, MetLife found that 76% of defined benefit plan sponsors with de-risking goals plan to completely divest their company’s plan liabilities at some point.

The report also said that among those likely to enter into a transaction in the next two years, 77% have already taken preparatory steps toward a buyout, including evaluating the financial impact of a pension risk transfer.

 

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