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Kimberly-Clark inks annuity conversion deal

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Kimberly-Clark Corp. will pour up to $475 million to its U.S. pension plan to purchase annuity contracts for about 21,000 retirees. 

The Dallas-based company’s pension transfer is being done with the Prudential Insurance Co. of America and Massachusetts Mutual Life Insurance Co. The insurers will take over payment responsibility for the retirement pension benefits Kimberly-Clark owes to the retirees. 

While retirees will receive the same total benefit that they were receiving from Kimberly-Clark, half will come from Prudential and half from MassMutual. 

State Street Global Advisors, which was the appointed independent fiduciary representing affected retirees’ interests, determined that having the transaction split between the two insurers was the safest available annuity structure to provide retiree benefits. 

Also read: Lawmakers urge clearer rules for de-risking

Thus, each insurer will issue annuities that will provide 50 percent of the total monthly benefits received by retirees. Prudential will be the administrator for the annuity payments distributed to each retiree, and the payments from the insurers will begin on June 1. 

With this action, Kimberly-Clark will be reducing its total amount of pension obligations by about $2.5 billion. 

Kimberly-Clark said that its additional contribution – ranging from $400 million to $475 million will be funded by debt and is incremental to the company’s previous assumption for 2015 global defined benefit pension plan contributions of up to $100 million.

The company’s defined benefit plan holds $5.9 billion in assets and faced $6.9 billion in projected benefit obligations as of Dec. 31 for a funding ratio of 86.2 percent, according to its SEC filings. 

A recent Aon Hewitt survey found that nearly two-thirds of employers plan to take actions this year to limit rising Pension Benefit Guaranty Corp. premiums, many by pursuing similar “derisking” strategies. 

Also read: Many still don’t get pension transfer risk