IBM completes $6B pension risk transfer to Prudential in group annuity buyout
After replacing its pension plan with a cash-balance plan last year, IBM has now completed a PRT, transferring $6 billion in defined benefit pension plan obligations for 32,000 participants.
As class action lawsuits increase over pension risk transfers, IBM has announced that it entered into a $6 billion PRT agreement with Prudential Insurance Company, completed on Sept. 11. The deal comes after the technology firm, once a leader in the shift away from defined benefit plans defined contribution plans in the ’80s, switched to a “hybrid pension” plan in 2023.
Under the terms of the transaction, IBM has purchased a single premium group annuity contract that transfers $6 billion of the company’s Personal Pension Plan’s defined benefit pension obligations to Prudential. The insurer will assume responsibility for making retirement benefit payments to approximately 32,000 retirees and beneficiaries.
“Under the group annuity contract, Prudential has made an irrevocable commitment, and will be solely responsible, to pay the pension benefits of each Transferred Participant that are due on and after January 1, 2025,” according to the SEC filing.
This marks the second PRT agreement between Prudential and IBM, which struck a deal with the insurer in 2022 to cover approximately 100,000 IBM retirees and beneficiaries.
Last November, IBM notified employees that it would suspend its 401(k) match and 1% automatic contribution as of Jan. 1, 2024 and will instead make a monthly account credit toward a new “Retirement Benefit Account.” The new plan also provides a one-time salary increase to offset the difference between the current company contribution and the new account credit amount.
As the retirement industry evolves from pension plans to 401(k) plans, PRTs allow firms to offload the burdensome administration of allocating pension plans. PRTs have helped firms bridge the transition, however, there have been a rash of class action lawsuits filed by retirees that claim their employers chose a risky insurer. In 2023, there were a record 773 PRTs, which is expected to grow. Increasingly, private equity firms are seeking to purchase stakes in annuity assets to gain access to a permanent capital stream.
These lawsuits are representative of a new line of retirement plan litigation that has targeted several major employers over PRTs. In June, AT&T filed a motion to dismiss two lawsuits alleging the company, as well as State Street Global Advisors, selected a risky insurer, Athene Annuity and Life Company, to conduct its $8 billion PRT in May 2023, offloading the pensions of 96,000 of its plan participants.
Lockheed Martin and Alcoa, which are also involved in PRT class action lawsuits, selected Athene as the provider of the PRT; however, Athene has not been named in any of these cases. In the first half of 2024, Athene completed 48 PRT deals valued at $52.3 billion, affecting over 550,000 plan participants, according to their website.
Related: Retiring the pension plan: A PRT’s pivotal role in the evolution of retirement plans
Rising interest rates are driving companies to offload retirement plan liabilities to annuity providers via pension risk transfer. In the first quarter of 2024, there were double the amount of pension risk transfers totaling $14.6 billion, 130% higher than the first quarter of 2023, according to LIMRA.