Raytheon to Transfer Nearly $1 Billion in Pension Liabilities

Weapons company Raytheon will shrink its pension liabilities by nearly $1 billion by transferring them to a group annuity contract with Prudential Financial.

The agreement sees the $30 billion missile maker transfer $923 million in obligations to the New Jersey insurer. Prudential will now pay the retirement benefits of about 13,000 Raytheon retirees and beneficiaries.

Prudential has been offering pension solutions since 1923. Last year, the company paid more than $11 billion in pensions to more than 1.3 million retirees and their beneficiaries.

As the market’s lengthy bull run is expected to turn bearish in the coming years, companies are looking to de-risk their pension liabilities. This and fear of an economic downturn have driven corporations to conduct more pension risk transfers, making it a growing trend.

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Rising interest rates and the new tax laws have also become an incentive for businesses to transfer their pension obligations. The laws, which cut the corporate tax rate from 35% to 21%, create more opportunities for tax deductions.

Raytheon also made a $1.25 billion pension contribution, almost cutting its 2018 tax rate in half, to about 10.5%, according to Reuters. It was 18% in 2017.

In 2017, single-premium pension buyout sales increased by 68% from 2016, totaling $23 billion, according to insurance data analyst LIMRA Secure Retirement Institute.

Tags: pension liabilities, Prudential, Raytheon

The Maine Public Employees Retirement System’s investments returned 1% during the fiscal fourth quarter of 2018, and 10.3% for the fiscal year ended June 30 net of fees, bringing its total market value to $14.3 billion. The fund returned 14.2% in fiscal 2017.

Although the quarterly returns fell short of its benchmark’s return of 1.5%, it easily surpassed its annual return of 8.5%. It is the 10^th consecutive year of positive returns for the system, and the fund’s market value has now more than doubled since the low-water mark of the financial crisis in February 2009, when its market value was $7.1 billion.

The fund reported three-, five-, and 10-year annualized returns of 7.7%, 8.2%, and 6.3%, respectively, ahead of its benchmark’s three-, five-, and 10-year annualized returns of 6.9%, 7.4%, and 5.8% respectively. However, over the long term, the fund and its benchmark were practically identical, with 20-year annualized returns of 5.9% versus 5.8%, and 30-year annualized returns of 8.2% versus 8.1%.

Despite the double-digit returns, the fund appeared to lose steam during the second half of the fiscal year as the investments returned only 1.5% and 1% during the last two quarters respectively.

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As of June 30, the fund’s asset allocation was 33.3% in public equity, 13.2% in private equity, 10.4% in infrastructure, 10.4% in US government, 9.1% in traditional credit, 8.9% in real estate, 8.1% in risk diversifiers, 4.2% in natural resources, 1.9% in alternative credit, and 0.6% in cash.

Tags: Benchmark, Maine Public Employees Retirement System (MainePERS), Returns