Verizon completes annuity purchase to transfer pension plan obligations

A Verizon Communications Inc. employee assists customers at a store in Orem, Utah. Verizon's new pension arrangement covers about 41,000 management participants who retired and began receiving pension/ Bloomberg

Verizon Communications Inc. disclosed Monday that it has completed its purchase of a giant group annuity to transfer about $7.5 billion in pension plan obligations to Prudential Insurance Co. of America.

The arrangement covers about 41,000 management participants who retired and began receiving pension benefits before Jan. 1, 2010. Verizon contributed about $2.6 billion to the plan in connection to the transaction, the company said in a filing with the U.S. Securities and Exchange Commission.

“The transaction is expected to further Verizon's objective of de-risking the pension plan while improving the company's longer-term financial profile,” New York-based Verizon said.

Verizon's move came after that of General Motors Co., which purchased a group annuity — also from Prudential — to cover the benefits of tens of thousands of participants in its pension plan for salaried employees.

More employers are expected to follow the paths blazed by GM and Verizon, experts say. Through purchasing an annuity and transferring the benefit obligations to an insurer, employers will save on costs such as premium payments to the Pension Benefit Guaranty Corp., as well as fees and costs associated with offering and administering their pension plans.

In addition, employers taking such actions no longer will be exposed to fluctuating interest rates and investment results, which can cause major changes in their pension plans costs and contributions.