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Jerry Geisel

AkzoNobel buys group annuity to reduce pension plan risk

December 18, 2013 - 1:14pm


In a move to reduce pension plan risk, AkzoNobel A.V. on Wednesday said it is buying a group annuity from Metropolitan Life Insurance Co. to provide benefits to about 9,400 U.S. pension plan participants who retired prior to October.

Through the action, AkzoNobel, an Amsterdam-based producer of specialty chemicals and paints, said it expects to reduce its U.S. pension plan obligations by about $655 million, or 65%.

“Part of our strategy is to de-risk pension liabilities over time,” AkzoNobel Chief Financial Officer Keith Nichols said in a statement.

“This transaction will improve the company's financial health by reducing the risk of a significant unexpected business expense due to the volatile nature of maintaining a defined benefit pension” plan, he added.

The annuity purchase is the second step AkzoNobel has taken to de-risk the U.S. pension plan. Previously, the company offered eligible former employees who were vested but not yet receiving benefits the opportunity to convert their future annuity into a cash lump-sum benefit. About 5,700 plan participants accepted the offer, which reduced the plan's obligations by $180 million, the company said.

Combined, the lump-sum payment transaction and annuity purchase will reduce plan obligations by $835 million to $355 million, the company said.

AkzoNobel's actions follow that of SPX Corp., a Charlotte, N.C.-based manufacturer, which, in November, also announced a two-step pension plan de-risking approach. It purchased an annuity from Massachusetts Mutual Insurance Co. to provide benefits to about 16,000 retirees and offered to about 7,500 former employees who are vested but not receiving benefits the opportunity to convert their future annuity into a cash lump-sum benefit.

SPX expects the two actions to reduce its pension plan obligations by about $800 million.