Baxter De-Risks $2.4 Billion in Pension Liabilities

Annuity contract with Prudential to transfer benefits for 17,200 members.

Health care company Baxter International has signed an agreement with Prudential to purchase a group annuity to transfer $2.4 billion in US pension plan liabilities, according to an SEC filing.

Under the terms of the agreement Baxter will purchase a non-participating single premium group annuity contract transferring the future benefit obligations and annuity administration for approximately 17,200 retirees and beneficiaries.

By transferring the obligations, Baxter said it will reduce its US pension plan liabilities by approximately $2.4 billion. The purchase of the group annuity will be funded directly by assets of the plan. The company said it doesn’t expect to make additional contributions to the plan prior to the closing of the de-risking transaction.

All transferred participants will continue to receive their pension benefits from the plan until Dec. 31, after which time Prudential will assume responsibility for making direct payment of the benefits. The transaction is expected to be completed by Oct. 11.

Baxter also said it expects to recognize a non-cash pension settlement charge of approximately $750 million as a special item in the fourth quarter of 2019.

Buy-out sales have been subdued this year compared to 2018, according to data from the LIMRA Secure Retirement Institute.

US single-premium pension buy-out product sales were $4.74 billion in the second quarter 2019, which was down 42% compared with the second quarter of 2018 when there were $11.1 billion in buy-out sales.

However, despite sales figures being down from last year, the number of buy-out contracts has increased in 2019. According to LIMRA, there were 112 new buy-out contracts sold in the second quarter, which brought the first half 2019 total to 190, compared with 158 contracts sold in the first half of 2018.

Group annuity risk transfer sales in the second quarter were $5.8 billion, down 32% from the second quarter of last year, according to LIMRA data.

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