Prudential Piles on the Corporate Pensions

Big U.S. companies have found a way to escape the burden of ballooning pension obligations: pay an insurance company to take them over. Since 2012 corporations have transferred $41.4 billion of U.S. pensions to insurers, according to Limra, an insurance industry trade association. Prudential has dominated the dealmaking, agreeing to acquire more than $35 billion in pension obligations from companies including Bristol-Myers Squibb, General Motors, Motorola Solutions, and Verizon—meaning the nation’s second-biggest life insurer now has the responsibility of making pension payments to almost 200,000 of those companies’ retirees.

For corporate executives, the transfers offer peace of mind. They no longer need worry about how stock market crashes or low bond yields will affect the company’s pension burdens. And they don’t need to estimate how long each of their retirees will live. For insurers, pensions are familiar territory: They already sell annuities and are in the business of managing pools of money to meet long-term obligations. Corporations have “no strategic rationale for wanting to hold on to these liabilities,” says Jonathan Novak, who oversees American International Group’s institutional life business. “It’s a far more natural fit for the skill set of the life insurers.”