Navistar Canada De-Risks Pension Obligations, Assets

Truck manufacturer transfers $268 million to two insurers.

Commercial truck manufacturer Navistar International’s Canadian subsidiary Navistar Canada ULC has purchased group annuity contracts from RBC Life Insurance and iA Financial Group on behalf of its defined benefit pension plans to transfer approximately $268 million in obligations and related assets to the two Canadian insurers.

The company said the move was designed to strengthen its balance sheet by lowering risk volatility in its pension plan obligations.

Under the terms of the agreements, the two Canadian insurers will issue annuities covering the responsibility for pension benefits owed to approximately 1,750 Navistar pension participants and beneficiaries. This represents the majority of Navistar’s pension plan members in Canada. The insurers will begin administering all benefits to these members beginning May 1. The company also said that pension benefits for plan participants will not change.

“These transactions continue our objective to de-risk the balance sheet and manage future pension obligations,” Walter Borst, CFO of Navistar International Corp., said in a release, “while retirees and their beneficiaries will receive equivalent pension benefits from highly rated insurance companies, who have strong expertise in long-term management of retirement benefits.”

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Once the transactions are completed, benefits for plan participants will be protected under Assuris, the not-for-profit organization that protects Canadian policyholders if their life insurance company should fail. Prior to the deal, the plan was under the protection of the Canadian Pension Benefits Guarantee Fund, which provides protection to Ontario members and beneficiaries of privately sponsored single-employer defined benefit pension plans in the event of plan sponsor insolvency.

As a result of the transactions, which were funded by existing plan assets and required no cash contributions to Navistar Canada’s pension plans, Navistar reduced its pension plan benefit obligations by approximately 8%. The company said it expects to recognize a non-cash pension settlement charge of approximately $142 million ($104 million after-tax) in its fiscal Q1 2019 financial results that will be excluded in its non-GAAP results. The company said that going forward, the transactions will reduce Navistar’s non-operating financial risk and administrative costs.


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