November 27, 2019

AK Steel Transfers $615 Million in Pension Obligations

Move brings firm’s total pension risk transfer to $1.1 billion since 2016.

Reported by Michael Katz

Steel producer AK Steel has purchased a group annuity contract from Massachusetts Mutual Life Insurance Company to transfer approximately $615 million of its pension obligations.

The contract permanently transfers the responsibility to pay pension benefit obligations for approximately 4,250 retirees from the company’s pension plan, according to the company’s SEC filing. AK Steel said there will be no change to the pension benefits for any plan participant, and that the transaction was funded entirely with pension plan assets. The company expects to record a non-cash pension settlement charge of approximately $25 million in the fourth quarter as a result of the transfer.

The deal brings AK Steel’s total amount of pension obligations transferred to approximately $1.1 billion in aggregate since 2016, representing nearly 20,000 retirees. The company said the changes reduce financial risks to the company and lowers administrative costs, while allowing it to continue to meet its pension commitments.

“This is another important step in de-risking our balance sheet, while continuing to demonstrate our commitment to ensuring our retirees’ benefits are secure,” AK Steel CEO Roger Newport said in a statement.

As of Mar. 1, MassMutual will begin making benefit payments and will provide administrative services to the specific plan participants.

Sales for US single-premium pension buy-out products topped $7.7 billion during the third quarter of 2019, according to the Secure Retirement Institute (formerly LIMRA SRI). That is up 23% from the third quarter of 2018. It was the 19th consecutive quarter of sales that exceeded $1 billion.

Year-to-date pension buy-out sales as of the end of the third quarter were $16.7 billion, which was up 4% from the first nine months of 2018. There were 111 new buy-out contracts sold during the quarter to raise the year-to-date total to 301, compared with 281 contracts sold during the first three quarters of 2018. Half of the companies reported an increase in contracts sold. The Secure Retirement Institute said the number of contracts sold has risen during each of the past six years, and is on pace for a seventh this year.

“This quarter marked the highest third-quarter sales for pension buy-out products since we have been tracking this market (in 1986),” Mark Paracer, the Secure Retirement Institute’s assistant research director, said in a release. “While there was a substantial contract reported this quarter, we also saw a high number of mid-sized contracts that drove the overall growth.”

Paracer said that new research shows that four in 10 plan sponsors are “very interested” in a pension risk transfer transaction, which is why he expects the buy-out market to continue to expand.

Total group annuity risk transfer sales in the third quarter 2019 hit $7.9 billion, 22% higher than during the third quarter 2018. For the first three quarters of 2019, total group annuity risk transfer sales were $18.1 billion, 9% higher than results for the prior-year period.