By Mario Marroquin
IBM Personal Pension Plan has penned two transactions with MetLife Insurance and Prudential Insurance to transfer $16 billion in group liabilities. The pension plan purchased nonparticipating single premium annuity contracts from MetLife and Prudential that will cover approximately 100,000 IBM pension participants.
The purchase of the annuity contracts, which closed September 13, has been reported to be the largest annuity transaction in the last decade. According to an 8-K filing from IBM, the insurers will be responsible for 50% of the benefits paid to 100,000 pension participants after January.
“The purchase of the group annuity contracts was funded directly by assets of the plan and required no cash or asset contributions from the company,” IBM’s filing said. “As a result of the transaction, the company expects to recognize a one-time non-cash pre-tax pension settlement charge of approximately $5.9 billion ($4.4 billion net of taxes) in the third quarter of 2022.”
IBM said its U.S. qualified defined benefit pension plan was funded at 112% at the end of fiscal 2021 and that the plan continues to be more than fully funded after the purchase of the annuity contracts.
The pension plan’s purchase of annuities contracts, based on year-to-date buy-out data from the Life Insurance Marketing and Research Association (LIMRA), builds on the momentum in the single premium buy-out space, which reached $202.5 billion in the second quarter and was 20% higher when compared to 2021.
Mark Paracer, assistant research director at LIMRA annuity research, said increased market volatility, rising interest rates and escalating costs to maintain plans are presenting challenges to plan sponsors and serving as tailwinds for pension risk transfers.