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IBM transfers portion of DB scheme to Prudential and MetLife

20th September 2022 - Author: Pete Carvill

Computer giant IBM has transferred a portion of its US-qualified defined benefit (DB) pension plan obligation to Prudential and MetLife.

pension trusteeThe firm said in an article on its website that the move was the ‘logical next step’ after several years looking to reduce the risk profile of its worldwide retirement-related plans while increasing their funding status. It said that in 2021, IBM’s qualified DB pension plan was funded at 112%. In moving the plans, IBM said it eliminated the potential for it to make further cash contributions.

IBM said on its website: “On September 7, 2022, IBM and the Plan entered into two separate commitment agreements, one with Prudential, and one with MetLife. Under the agreements, group annuity contracts are purchased to transfer to the Insurers approximately $16bn of the Plan’s obligations related to certain pension benefits that began prior to 2016. This represents over 40% of the Plan’s obligations. On September 13, 2022, the purchase of the group annuity contracts closed, and the contracts were purchased utilising assets of the Plan. No cash or asset contribution was required of IBM. Under the contracts, the Insurers split equally the responsibility to pay the pension benefits due on or after January 1, 2023.”

It added: “In the third quarter of 2022, IBM expects to incur a non-operating, non-cash, pre-tax charge of approximately $5.9bn related to the accelerated recognition of actuarial losses for the Plan. The actual settlement charge will depend on finalisation of the actuarial assumptions. This charge was not included in the GAAP forward-looking information released on July 18, 2022. As the charge is non-operating and non-cash, it will not impact IBM’s third quarter or full-year 2022 operating (non-GAAP) profit or free cash flow.”

According to the Form 8-K that IBM filed with the Securities and Exchange Commission in the US on Tuesday, the purchase of the group annuity contracts closed on September 13, 2022. The contracts cover approximately 100,000 IBM participants and beneficiaries. Under the group annuity contracts, each Insurer has made an irrevocable commitment, and will be solely responsible, to pay 50% of the pension benefits of each Transferred Participant that are due on and after January 1, 2023.

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DB pension plans are schemes in which the benefits of a pension are set out clearly from the beginning, usually calculated along the line as a percentage of final or average earnings across an employee’s career. The benefits of a defined contribution plan, on the other hand, are predicated on the performance of the underlying investments in the pension portfolio. DB schemes are generally considered more financially onerous to employers and, for this reason, have declined in popularity in recent years.

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