United Technologies Corp. (IW 500/19), the provider of products to the aerospace and building industries, is reducing its pension liabilities by $1.77 billion through the transfer of obligations to insurer Prudential Financial Inc. and a plan to offer lump-sum payouts to some retirees.
United Technologies will shift $775 million of those commitments, covering about 36,000 retirees and beneficiaries, to Prudential in a transaction that’s expected to close Oct. 12, the Farmington, Conn.-based industrial company said Thursday in a statement. Also, 10,000 participants are expected to take lump-sum offers, reducing the company’s obligation by approximately $1 billion by Dec. 31. United Technologies said it expects to take a pretax settlement charge of about $400 million to $530 million in the fourth quarter.
Older industrial companies have found retiree obligations increasingly burdensome, partly because of longer lifespans and also because low interest rates reduce the income that can be earned on funds set aside to back the commitments. Pension costs are “probably the biggest single issue we have today,” Chief Executive Officer Gregory Hayes said last month.
“This transaction is an important part of United Technologies’ long-term strategy to reduce future pension risk and expense,” Chief Investment Officer Robin Diamonte said in the statement. “It will not affect participants remaining in the plans and entrusts the assets leaving the plans to a highly rated insurance company whose core business is retirement security and administration of pension benefits.”
Prudential, the second-largest U.S. life insurer, has taken on some of the biggest pension transfers, winning transactions with companies including General Motors Co. and Verizon Communications Inc. The Newark, New Jersey-based insurer announced a $2.5 billion pension-risk deal last month with paper and packaging company WestRock Co.
Insurers’ traditional business involves the risk that lifespans are shorter than expected, meaning pension deals can help act as a hedge.
By Katherine Chiglinsky and Richard Clough