As more and more employers analyze their ever-growing pension obligations, Boeing and Hartford Financial Services Group are the latest companies to use the lump-sum payment tactic to limit their liabilities.
Boeing alerted 40,000 former employees last month about an opportunity to cash out their pension benefits as a lump sum payment or begin monthly annuity payments in December regardless of whether the participants are qualified to begin collecting their retirement benefits, says Boeing spokesman Ron Taylor.
The third option is to not take the payout and remain as a participant in the plan. Taylor notes the pension cash-out option is available to former non-union employees, with a small group that was previously represented by a union.
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Accessible through the companys enrollment period, which began Sept. 15, the offering will expire Oct. 31. Meanwhile, those that enroll online can do so until Nov. 7, Taylor explains.
Boeing has over 169,000 employees in the U.S. and in more than 65 other countries. Collectively, its pension obligation is around $68 billion. Meanwhile, total assets are around $58 billion, $3 billion of which is directly charged to administration and contribution costs, Taylor notes.
But Boeing is still unclear on how much it is expected to save from the pension proposal, Taylor says, while noting this is another step in our efforts to control our pension obligations.
We kind of have to wait and see what we do see [in terms of savings], Taylor says. The savings of course depends on how many of those 40,000 take up the opportunity. Certainly not all of them will.
For The Hartford, a property and casualty insurance, group benefits and mutual fund company, its limited voluntary lump sum offer was made to approximately 13,500 former employees within its U.S. defined benefit pension plan. In an Oct. 27 company filing, The Hartford notes that it will begin making payments to those who do choose the lump sum option in December. Plan participants have until November to opt in.
The offer is completely voluntary, participants have full discretion to accept the offer or keep their pension with no changes, explains Thomas W. Hambrick, a company spokesperson. At the end of 2013, The Hartford had more than $5.5 billion pension benefit obligations, a past company filing indicated.
Another potential benefit is The Hartfords new contract with financial counseling firm The Ayco Company. At no cost to former employees, Hambrick says this can help participants [to] make the choices that are right for them.
José M. Jara, principal and national practice leader for multiemployer plans at Buck Consultants at Xerox, states that DB plan sponsors have been looking at de-risking for a long time.
Its just that more companies now feel the need that it makes better sense to get rid of it, which is allowed under the law, Jara explains. This is nothing that hasnt been available since before ERISA.
In September, Motorola Solutions said it was incorporating a new group annuity and lump sum payment plan that was expected to shave $4.2 billion in growing liabilities and benefit payments off its balance sheet.
The annuity benefit shift, which was third-largest pension transfer plan ever recorded and includes 30,000 retirees, now falls under the purview of Prudential Insurance Company of America. Also, 32,000 of the 42,000 people who make up Motorolas terminated vested employees those participants that left the company but have not started receiving their benefits were able to either take a lump sum payment or opt to start receiving benefits checks.
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According to Towers Watson research, pension de-risking and the lump sum idea have gained notoriety among plan sponsors, where about 58% said in a 2013 study that they have already offered or were expected to provide lump sums to their former employees. Over the past two years, lump-sum acceptance rates among participants usually exceeded 60%, Towers Watson stated.
Meanwhile, interest rates also impact the decision to provide a lump-sum payment; Towers Watson said that 33% of company plan sponsors noted the interest rate environment helps fuel the move.
At Boeing, with more than 357,000 participants in the companys Pension Value Plan and the Boeing Company Employee Retirement Plan, favorable rates played a part in the decision to de-risk its retirement liability. Taylor explains that interest rates right now make it financially feasible for the plan to offer the opportunity.
In the end, Taylor says Boeing is trying not only to address its growing liability and reduce it by making them more predictable and less vulnerable to changing interest rates, but also give employees what theyve been asking for, and thats control over their own retirement fund.
Buck Consultants Jara agrees, noting that one of the pros [of the lump-sum payout] is the portability that the person has to use this money to incorporate into their own personal finances.
