Demand soaring for pension transfers to insurers prompted by Prudential decision

BOSTON/NEW YORK, Mon Jun 11, 2012 – Last week’s deal by Prudential Financial to take on $26 billion of the retirement liabilities of General Motors has reignited a part of the American insurance market that had been bouncing along the bottom in recent years.

But experts in the sector say GM’s splash was so big, there may be somewhat limited capacity for more mega-sized deals in the market for pension-risk transfers. Still, the market could be in the tens of billions over the next few years, they said.

A Reuters analysis of the pension obligations of the S&P 500 found that almost half of the companies with underfunded pensions have enough cash to spare to do a risk-transfer deal, including Rupert Murdoch’s News Corp and agriculture giant Archer Daniels Midland Co, suggesting there could be a scramble ahead for that limited capacity.

Known as pension terminal funding, the concept is simple: an employer pays an upfront premium to an insurance company for an annuity that covers all the members of a pension plan.

The insurer becomes responsible, via the annuity, for all of the retirees’ pensions and the sponsor gets to wash its hands of the obligation.

“Starting about a year ago it was the chatter, the chatter picked up … in the last six months, even in the low interest rate environment, transactions are starting to happen,” said Mike Devlin, the head of the Boston office for BCG Terminal Funding, which matches plan sponsors with insurers.

For years, plan sponsors have held off on buying single-premium group annuities to transfer risk, hoping that interest rates would rise from historically low levels, boosting the value of their assets and potentially filling pension gaps without extra cash.

Ford readies first set of landmark pension buyouts

DETROIT, Thu May 31, 2012 – Ford Motor Co. will pursue its boldest attempt yet to tackle a nearly $50 billion risk to its business when it begins offering lump-sum pension payout offers to 98,000 white-collar retirees and former employees this summer.

The voluntary buyouts have the potential to lop off one-third of Ford’s $49 billion U.S. pension liability, a move that could shore up the company’s credit rating and stock price. It is unclear to Ford, retirees and analysts just how many people will gamble on the offer, which pension experts described as unprecedented in its magnitude and scope.

“We think if we can get at least a meaningful number of employees, this will take billions of dollars of obligations potentially off the table,” Chief Financial Officer Bob Shanks told Reuters in an interview.

A growing concern for decades as U.S. automakers lost market share to foreign-based automakers in their home country, pension costs became an albatross for the U.S. industry with the sector’s downturn five years ago.

The offers are the latest in a series of steps Ford and its larger rival General Motors Co have taken to cut these risks. Since 2000, Ford’s U.S. pension liability has increased almost 50 percent. Several companies have asked Ford how the buyout offers will be rolled out, a sign that others may follow suit if Ford is successful.

The No. 2 U.S. automaker sketched out its pension buyout offer for current retirees when it released first-quarter earnings in April, but until now had offered few details.

As early as August, between 12,000 and 15,000 U.S.-based workers will receive the first wave of offers to swap their monthly pension checks for a one-time payment.

The offer shifts the responsibility of managing those funds from Ford to the retiree. It is rare for a company to amend an existing pension plan.

“I feel schizophrenic at times,” said Rick Popp, Ford’s director of employee benefits. “There are times when I think it will be very popular. Other times, I think nobody will take it. To us, it’s an opportunity.”

At the end of 2011, the gross pension liabilities of both GM and Ford rose to record levels, Citi analyst Itay Michaeli said. Ford finished 2011 with a global pension obligation of $74 billion, nearly double the company’s $40 billion stock market value.

Major pension fund to vote against Wal-Mart board

BENTONVILLE, Ark, Tue May 22, 2012 – The second largest U.S. public pension fund said on Tuesday it plans to vote all of its Wal-Mart Stores Inc shares against the board in the wake of bribery allegations in Mexico that Wal-Mart officials failed to fully investigate.

California State Teachers’ Retirement System, or CalSTRS, has already sued current and former Wal-Mart executives, saying allegations the company paid millions of dollars of bribes in Mexico and a cover-up by Wal-Mart officials raised the question of whether top executives should remain in place.

The allegations “indicate a breakdown of corporate governance and lack of oversight that should have averted this situation,” CalSTRS said in a statement.

CalSTRs added it “does not have confidence the current board has the independence and leadership needed to address these difficult issues.”

CalSTRS plans to vote its 5.3 million Wal-Mart shares against the re-election of all board members and encouraged other shareholders to do the same.

The $153.7 billion pension fund has said as an index investor, it is required to hold shares of the retailer, which is a component of the Dow Jones industrial average and many indexes.

Shares of Wal-Mart were up 0.8 percent at $63.53 in late-morning trading after rising to $63.55, their highest level in more than 10 years, earlier in the session.

U.S. agency: American Airlines parent will seek to terminate worker pensions

WASHINGTON – The U.S. Pension Benefit Guaranty Corp., which has responsibility for insuring certain benefits under private defined benefit pension plans, said on Tuesday it believes American Airlines will seek to terminate employee pensions in bankruptcy.

The agency said it filed a $92 million lien against American parent AMR Corp. for the balance of unpaid pension plan contributions. It added the lien was applied to AMR assets outside the United States, mainly in Latin America.

American filed for Chapter 11 protection in late November citing uncompetitive labor costs. The carrier has yet to issue a labor cost-savings target.

Kodak employee sues company directors over stock

ROCHESTER, N.Y. – An Eastman Kodak employee filed a civil lawsuit against Kodak’s board members and other fiduciaries of the photography companies’ retirement plans, saying they breached their duties as the company was spiraling toward bankruptcy.

Mark Gedek, who continues to work at Kodak, said in the suit that he is a participant in the Kodak Employees Savings and Investment Plan as well as the Kodak Employee Stock Ownership Plan. The board members and directors of those plans continued to sell shares to employees and invest in them ahead of the bankruptcy, he said.

Kodak filed for bankruptcy in mid-January, saying it would use the bankruptcy court process to try to sell patents and shed other assets to bring costs and revenue in line. Typically in bankruptcy, shareholders’ equity is worth nothing.

Kodak shares, which trade for 34 cents on the pink sheets, were trading at 55 cents on January 18 before the company filed for bankruptcy.