SPX Corporation recently announced it would transfer pension liabilities for 16,000 retirees to Massachusetts Mutual. The amount of these liabilities is reported to be $625 million. In addition, SPX will offer 7,500 former employees the option of taking a lump sum distribution from the SPX pension plan. SPX expects that the two actions together will reduce its pension liabilities by $800 million. SPX stated that a $250 million contribution to its plan earlier this year enabled the company to take these steps.
The SPX pension transfer follows two larger transfers last year: Verizon transferred $7.5 billion of pension liabilities to Prudential, and General Motors, in connection with a plan termination, transferred liabilities to Prudential and offered lump sums to retirees to reduce its pension liabilities by approximately $26 billion.
Favorable stock market returns and recent increases in interest rates may make transfers of liabilities to insurance companies more attractive. As funding levels improve, plans have greater ability to purchase annuity contracts. In addition, plan sponsors may take comfort in certain legal developments. For example, although Verizon’s pension transfer was challenged in court, Verizon has obtained favorable rulings recognizing a plan sponsor’s broad authority to transfer pension benefits from an ERISA-covered plan to an insurance company. In addition, the ERISA Advisory Council held hearings earlier this year examining pension settlements. Despite some calls for a moratorium on pension settlements, the Council’s primary recommendation regarding pension transfers focused only on the standard for selecting an insurance company. The SPX transaction (like the Verizon and GM transactions before it) is therefore likely to continue to be replicated.