J.C. Penney Cuts Pension Plan Obligation--Update
October 02 2015 - 9:31AM
Dow Jones News
By Lisa Beilfuss
J.C. Penney Co. said Friday it would cut its $5 billion pension
obligation up to about a third, through a lump-sum offer to
participants in addition to a deal with Prudential.
The Texas-based retailer has struggled with large pension costs
that have coupled with dwindling sales to pressure earnings. The
company has in the past bought out employees' pension plans and
offered early retirement.
J.C. Penney joins a host of other companies moving to unload
some of their future pension liabilities to insurers. To companies,
it is a way to hedge against potentially dour investing returns or
a surge in costs; for insurers, it is a quick way to add billions
of dollars in assets.
Last year, Motorola Solutions Inc. shifted the pension
responsibilities for 30,000 retirees to Prudential, transferring
about $3.1 billion in U.S. pension liabilities. That followed moves
in prior years by General Motors Co. and Verizon Communications
Inc.
The funding strategy has become more attractive to businesses
facing costs that are rising for a variety of reasons, including
regulatory changes.
J.C. Penney said about 12,000 retirees and beneficiaries took
the latest deal and opted for lump-sum payments, and roughly 1,900
former employees with deferred vested benefits also chose to take
the offer. The company said payments will be made in November once
the final settlement amount is determined.
Meanwhile, the retailer struck a deal with Prudential by which
J.C. Penney will transfer a portion of its obligations and assets
to Prudential. The transfer would leave the remaining pension plan
overfunded, the company said. The annuity transaction will close in
December and its final size is subject to the condition that the
plan remains overfunded at closing, according to the company.
The moves will reduce J.C. Penney's pension obligation by 25% to
35% and eliminate a similar percentage of participants.
Shares in the company, down about 4% over the past year, were
inactive premarket.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 02, 2015 09:16 ET (13:16 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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