Weapons company Raytheon will shrink its pension liabilities by nearly $1 billion by transferring them to a group annuity contract with Prudential Financial.
The agreement sees the $30 billion missile maker transfer $923 million in obligations to the New Jersey insurer. Prudential will now pay the retirement benefits of about 13,000 Raytheon retirees and beneficiaries.
Prudential has been offering pension solutions since 1923. Last year, the company paid more than $11 billion in pensions to more than 1.3 million retirees and their beneficiaries.
As the market’s lengthy bull run is expected to turn bearish in the coming years, companies are looking to de-risk their pension liabilities. This and fear of an economic downturn have driven corporations to conduct more pension risk transfers, making it a growing trend.
Rising interest rates and the new tax laws have also become an incentive for businesses to transfer their pension obligations. The laws, which cut the corporate tax rate from 35% to 21%, create more opportunities for tax deductions.
Raytheon also made a $1.25 billion pension contribution, almost cutting its 2018 tax rate in half, to about 10.5%, according to Reuters. It was 18% in 2017.
In 2017, single-premium pension buyout sales increased by 68% from 2016, totaling $23 billion, according to insurance data analyst LIMRA Secure Retirement Institute.