Motorola Solutions Inc. will shift about $3.1 billion in pension obligations to around 30,000 retirees in its frozen defined benefit plan to Prudential Insurance Co. at the start of 2015. The risk transfer becomes the third-largest of its kind, after similar moves in recent years by General Motors Co. and Verizon Communications Inc.
At the same time, Motorola Solutions announced Sept. 25, it will offer optional lump-sum payouts in December of this year to about 32,000 terminated vested participants who haven’t yet retired. Together, the two steps are expected to roughly halve the company’s pension obligations, lower them to about $4.2 billion.
Some aspects of the transaction are subject to review by the U.S. Pension Benefit Guaranty Corp., the company said in a U.S. Securities and Exchange Commission filing about the annuitization. Such pension risk transfers to insurance companies, also known as “derisking,” are criticized by retiree advocacy groups as leaving participants unprotected by PBGC insurance against failure to pay benefits.
Follows Motorola Spinoff
DB plans are taking advantage of current low interest rates and strong equities performance to offload crushing pension obligations that often remain from larger workforces at their companies. In Motorola Solutions’ case, the sale earlier in 2014 of most of its enterprise business, including mobile computing, barcode-scanning technology and local area networking, left it with many fewer workers and a pension plan with former employees making up about 90 percent of its participants, according to a Sept. 29 report by Pensions & Investments.
Motorola Solutions had $6.071 billion in U.S. pension assets and $7.317 billion in projected benefit obligations, a funded ratio of 83 percent, as of Dec. 31, 2013, it said in its 10-K filing for the year. The plan was closed to new participants in 2005 and frozen in 2009, the news report said.
The company’s corporate vice president and treasurer, Robert O’Keef, formerly worked at GM, which, after his departure, executed a 2012 transaction with Prudential that moved $25 billion in pension liabilities covering 110,000 retirees off GM’s books — the largest such transfer to date in the United States. He said in the news report that Motorola Solutions is transferring the liability to Prudential at par, without paying the insurer a premium.
A Sept. 25 Wall Street Journal story about the Motorola Solutions deal said monthly benefits paid to retirees will remain the same after they are transferred to Prudential at the beginning of 2015 in a so-called group annuity contract.
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