Earlier today, Motorola Solutions announced that it is transferring $3 billion of pension liabilities to Prudential. The transfer covers approximately 30,000 plan participants who currently receive monthly pensions. In addition, former employees who have a vested benefit under the company’s pension plan but have not yet begun to receive benefits will be given a one-time offer to receive a lump sum. The company is limiting the total amount of lump sums to $1 billion.
The Motorola Solutions transaction is the third largest transfer of pension liabilities to an insurance company in the United States. In 2012, General Motors transferred approximately $25 billion of pension liabilities to Prudential and, in the same year, Verizon transferred approximately $7.5 billion of pension liabilities to Prudential. The magnitude of de-risking transactions decreased in 2013, but some large transactions continued to occur. For example, in 2013 SPX announced a transfer of $625 million to Massachusetts Mutual.
The Motorola Solutions transaction comes at a time when many companies that sponsor defined benefit plans are considering ways to reduce financial volatility associated with pension liabilities. As we previously noted, there has been some scrutiny of pension de-risking transactions in recent years. In 2013, the ERISA Advisory Council held hearings on pension de-risking, but, despite 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. In addition, Verizon’s pension transfer was challenged in court, but the district court dismissed those claims in their entirety. An appeal is pending.
Earlier this week, the PBGC issued a proposal to collect information from plan sponsors regarding certain pension de-risking activity. Under the proposal, plan sponsors would be required to report to the PBGC each year “undertakings to cash out or annuitize benefits for a specified group of former employees.”