Lincoln Electric, a Cleveland-based manufacturer, has inked a deal to offload $425 million in pension liabilities to investment management firm Principal Financial Group.
“The group annuity contract includes an irrevocable commitment by Principal Financial to make annuity payments.”
The deal would cut Lincoln’s outstanding defined benefit exposure nearly in half, from $900 million to $475 million. Lincoln announced the purchase on Wednesday, noting that Principal Financial will take responsibility for the monthly pension payouts starting November 1.
“The purchase of this group annuity contract allows the company to secure pension benefits for its approximately 1,900 retirees, reduce volatility in pension costs and funding requirements, while maintaining a fully-funded plan for the remaining retiree obligations,” Lincoln’s statement said.
It anticipates transferring $132 million in non-cash assets to Principal Financial, which will be charged to the manufacturer’s books in the third quarter of this year. The bulk annuity buy, it said, can be wholly paid for with existing plan funding and won’t require any cash contributions.
The annuity purchase covers members of Lincoln’s US Retirement Annuity Program who stopped working on or before June 1 of this year. The retirees affected are being notified of their new situation by mail, according to Lincoln. In announcing the deal, the company took pains to point out that members should not be impacted by their change in liability holders.
“The group annuity contract includes an irrevocable commitment by Principal Financial to make annuity payments to affected retirees covered under the contract.”
Meanwhile, Prudential Retirement Insurance and Annuity Company (PRIAC)—part of the Prudential group that dominates the US pension-risk transfer market—has backed a longevity swap with UK insurer Legal & General (L&G). PRIAC will reinsure $2.9 billion of L&G’s bulk annuity business against improvements in life expectancy. It follows a similar transaction in June, with PRIAC sealing a $2.3 billion longevity swap with Pension Insurance Corporation.
Related: Pru Splits Latest Mega-Buyout Deal with Competitor & PRT Activity Pipeline to Swell in Next Five Years