Timken Transfers Some DB Liability to Prudential

The Timken Company has agreed to purchase a group annuity from Prudential to pay certain retirees’ future pension benefits.

The Timken Company announced it has entered into an agreement to purchase a group annuity from The Prudential Insurance Company of America to pay future pension benefits for approximately 5,000 of its U.S. retirees. 

Prudential will begin paying benefits to certain retirees and surviving beneficiaries in April, starting with those who are currently receiving benefit payments from Timken’s U.S. retirement plan.

Timken, which manufactures bearings and assemblies, as well as power transmission systems, has contributed nearly $2 billion to its global pension plans, and its U.S. plans are fully funded. The group annuity contract includes an “irrevocable commitment by Prudential to make annuity payments to affected retirees covered under the contract,” according to the firms. 

The annuity purchase from Prudential is expected to have no impact on the value of monthly pension benefits Timken retirees and surviving beneficiaries receive today. Timken will notify individuals affected by the change via mail.

When finalized, the annuity purchase will reduce The Timken Company’s gross pension liability by about $600 million. The purchase will be funded by existing plan assets and requires no cash contribution from the company. However, a non-cash pension settlement charge of approximately $220 million will be charged to the company in the first quarter. Following the annuity purchase, the balance of Timken U.S. plans are expected to remain fully funded.