IBM Completes $6B Pension Risk Transfer With Prudential

IBM on Wednesday disclosed that on September 5 it entered into an agreement with Prudential Insurance Company of America to transfer about $6 billion in defined benefit pension obligations to an annuity provided by the insurer.

The annuity purchase covers about 32,000 participants and beneficiaries of the IBM Personal Pension Plan whose benefits began to be paid prior to 2016, according to IBM’s Form 8-K filed with the Securities and Exchange Commission.

The filing states, “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. The transaction will result in no changes to the amount of benefits payable to the Transferred Participants.”

The deal pushes even higher 2024 pension-risk transfer activity, which totaled $26 billion in the first half of 2024, according to new data released by Legal & General Retirement America, an increase of about 15% from the first half of 2023.

IBM’s purchase of the group annuity contract was funded directly by plan assets and required no cash contribution from the company to complete. As a result of the transaction, IBM reported that it expects to recognize a one-time non-cash pre-tax pension settlement charge of approximately $2.7 billion in the third quarter of 2024.

The deal comes two years after IBM completed a $16 billion pension risk transfer with Prudential and MetLife covering approximately 100,000 participants and beneficiaries. At the time of that deal, which continues to be one of the largest ever completed, IBM said the amount represented more than 40% of the plan’s obligations.

“The overall funded status of the plan makes the transfer of a portion of the pension liabilities and assets to an insurance company a logical next step to further de-risk retirement-related plans,” the company said in a 2022 statement.

As of Dec. 31, IBM’s U.S. pension plan assets totaled $24.44 billion, while projected benefit obligations totaled $19.85 billion, for a funding ratio of 123.1%, according to information from the company’s 2023 annual report.

IBM also stated in the 2023 annual report that “contributions related to all retirement-related plans [U.S. and non-U.S.] are expected to be approximately $1.5 billion in 2024, a decrease of approximately $300 million compared to 2023… In 2024, we are not legally required to make any contributions to the U.S. defined benefit pension plans.”

It is not clear if or how this deal changes that.

The 2024 pension risk transfer comes less than a year after IBM announced in 2023 that it would end corporate contributions to the company’s defined contribution plan and instead reopen its cash balance DB pension fund.

That deal, and overall high levels of U.S. corporate pension funding levels in 2024, raised questions about whether other plan sponsors would take advantage of excess pension assets and do something similar.

Milliman, in April, said nearly half of the largest U.S. pension funds were more than 100% funded.