Financial services firm The Hartford has agreed to purchase a group annuity contract with Prudential Financial into which it will transfer $1.6 billion, or 29%, of the company’s $5.6 billion in US qualified pension plan liabilities.
The agreement will shift responsibility for current and future pension benefits for approximately 16,000 former employees, or about 38% of The Hartford’s U.S. pension plan participants, to Prudential as of June 30. There will be no change to the pension benefits for any plan participants as a result of the agreement.
“We are pleased that this transaction preserves these pension benefits while reducing the company’s long-term pension obligations,” said Marty Gervasi, The Hartford’s chief human resources officer. “We are grateful for the contributions The Hartford’s former employees have made to the company, and the provider selected is a highly-rated, experienced retirement benefits provider in the industry.”
As a result of the transaction, The Hartford expects to recognize a pension settlement charge to net income of approximately $485 million, after tax, in Q2. It also expects a reduction to stockholder’s equity of approximately $140 million, or $0.37 per diluted share based on March 31, 2017, shares outstanding.
The Hartford also said it will make a contribution of approximately $300 million by the end of the year in order to maintain the plan’s pre-transaction-funded status.
Currently there is no action required on the part of the plan’s participants being transferred to Prudential, who will receive initial notice from The Hartford by the end of July, and will receive detailed information from Prudential in mid-October. All transferred plan participants will continue to receive their benefits from The Hartford’s pension plan until November 1, at which time the payment and administration will transition to Prudential. All other plan participants will remain in The Hartford’s plan.
According to The Hartford’s most recent annual report for fiscal year 2016, it projected that will pay a total of nearly $3.5 billion in pension benefits over the next 10 years to 2026.