Prudential, RGA Assume Verizon Pension Obligations of $5.9B

Verizon Communications Inc. has transferred $5.9 billion in employee pension obligations through the purchase of single-premium group annuity contracts from Prudential Insurance Co. of America and RGA Reinsurance Co., according to a filing on March 6, when the plan sponsor closed the purchase of the contracts.

The group annuities will provide benefits to 56,000 retirees who began receiving payments from the Verizon pension plans before January 1, 2023. Prudential is based in New Jersey, and RGA is based in Missouri.

State Street Global Advisors Trust Co., based in Boston, is acting as the independent fiduciary of the affected pension funds, the Verizon Management Pension Plan and the Verizon Pension Plan for Associates.

“Prudential and RGA each irrevocably guarantee and assume the sole obligation to make future payments to the Transferred Participants as provided under their respective group annuity contracts, with direct payments beginning July 1, 2024,” the filing stated. “Prudential and RGA will each assume 50% of the benefit obligation related to Transferred Participants, except in certain jurisdictions where Prudential will assume 100% of the benefit obligation related to Transferred Participants residing in such jurisdictions.”

Verizon reported in the filing that it made additional contributions of about $365 million to the pension plans prior to the closing date of the transaction, which will mean that the funded ratio of each plan will not change as a result of this transaction.

The aggregate amount of each participant’s payment under the group annuity contracts “will be equal to the amount of each individual’s payment” under the pension funds, according to the Verizon filing.

One of the more unique features of the setup is the split transaction between Prudential and RGA, with each taking responsibility for 50% of payments for most participants, and Prudential administering everything, says Michael Clark, a managing director and consulting actuary with Agilis.

“Doing these type of split transactions—where technically each participant’s benefit is going to be split in half in terms of who is insuring it—means that they are getting double coverage from the state guarantee associations, which adds an additional level of protection from the participant’s perspective,” says Michael Clark, a managing director and consulting actuary with Agilis. “That’s a really good thing.”

Clark noted that RGA is a relatively new insurance player in the market among others who are seeking to leverage their business model for the PRT market.

“We’ve seen since 2012 more and more insurers get into this marketplace because they are realizing that these pension benefits are very much aligned with the type of long-term strategies that they employ anyway,” Clark says.

Verizon in 2012 transferred $7.5 billion in pension obligations to Prudential, which has completed four of the six largest U.S. pension risk transfers on record, according to an announcement related to the Verizon deal.

“Prudential is once again proud to help secure the pension benefits of Verizon’s retirees, along with RGA for this transaction, with whom we have a long-standing relationship,” said Alexandra Hyten, Prudential’s head of institutional retirement strategies, in a statement. “That, along with Prudential’s deep experience and leadership in managing and administering retirement benefits, will provide Verizon’s retirees a seamless transition with the superior service they expect and deserve.”

This is the largest transaction so far in 2024, though only slightly ahead of February’s top deal, when Prudential took on $4.9 billion in pension obligations from Shell, Clark notes, with Agilis expecting more deals, both big and small, through the year.

“It just goes to show you that the more and more companies that are analyzing the overall risk profile of maintaining pension plan benefits, they are realizing that the economics work in their favor to offload these to insurers,” he says.

Clark notes that many firms doing PRT transactions today are doing their second or third transfers. He expects, due to the relatively favorable market for PRTs, that transactions will soon grow among first-time companies as well as plan types.

“This is starting to expand beyond the corporate, single-employer space,” he says. “Especially as interest rates come up, we’re starting to see more interest from other types of pension plans in pension risk transfers—that includes multi-employer plans, church plans, public sector plans. They are starting to take a look at this and ask, ‘Hey, do the economics make sense for us as well?’”

Verizon’s recent transaction comes as the Department of Labor is overdue to release the results of its work to study and report on its findings about its Interpretive Bulletin 95-1, which governs fiduciary standards for selecting an insurer for a pension annuitization.

The SECURE 2.0 Act of 2022 required the DOL to study IB 95-1 and report its findings and any recommended changes to Congress by the end of this year. At hearings last year, hosted by the DOL’s ERISA Advisory Council, insurers said the existing procedure is working well, but some acknowledged that positive changes could still be made.