United Technologies Moves to Offload Some Pension Risk

The company is offering a lump-sum window to terminated, vested employees and moving some pension obligations to an insurer.

By PLANSPONSOR staff | October 07, 2016

Apparently deciding that pension annuitization would be less costly than maintaining its plans, United Technologies Corp. announced two actions that are expected to reduce the overall size of its pension obligations by approximately $1.77 billion.

First, United Technologies will transfer approximately $775 million of its outstanding pension benefit obligations under the UTC Employee Retirement Plan and the UTC Represented Employee Retirement Plan to The Prudential Insurance Company of America. This transaction is expected to close on October 12 with the purchase of a group annuity contract from Prudential.

Prudential was selected in consultation with independent experts after a competitive bidding process. Prudential will assume the obligation and administrative responsibility for retirement benefits owed to approximately 36,000 United Technologies retirees and surviving beneficiaries who currently receive a benefit of $300 per month or less from the plans.

"This transaction is an important part of United Technologies' long-term strategy to reduce future pension risk and expense. It will not affect participants remaining in the plans and entrusts the assets leaving the plans to a highly rated insurance company whose core business is retirement security and administration of pension benefits," says Robin Diamonte, United Technologies' Chief Investment Officer.

Second, United Technologies has also implemented a program offering certain former U.S. employees or beneficiaries with a vested pension benefit an option to take a one-time, lump sum distribution rather than future monthly pension payments. Upon completion of this program, United Technologies expects approximately 10,000 participants to take the lump-sum offer. Payments will be paid from the retirement plans during late 2016. This action is expected to reduce United Technologies' pension benefit obligations by approximately $995 million by year-end 2016.

Together, these related actions are part of United Technologies' overall plan to de-risk its pension plans and are expected to reduce the overall size of the company's pension plans by approximately $1.77 billion. The transactions will not diminish the plans' funded status and are not expected to materially impact future pension expense or to require additional contributions to the plans.

Because these actions accelerate the satisfaction of future pension obligations, United Technologies expects to recognize a one-time pre-tax pension settlement charge in the range of $400 million to $530 million in the fourth quarter of 2016. Willis Towers Watson served as the strategic adviser to United Technologies in these transactions.