Summary
Verizon Communications Inc. (VZ) announced on October 17, 2012, a significant move to de-risk its pension obligations. The company, through its pension plan, has entered into an agreement to purchase a single premium group annuity contract from Prudential Insurance Company of America for approximately $7.5 billion. This transaction will effectively transfer the responsibility for paying pension benefits to around 41,000 retired Verizon management employees who began receiving payments before January 1, 2010, to Prudential. This de-risking strategy aims to reduce the volatility associated with managing these long-term pension liabilities on Verizon's balance sheet. Verizon anticipates making substantial contributions, approximately $2.5 billion in total (including a September 2012 contribution), to ensure the pension plan remains adequately funded post-transaction. The company expects this transaction to close in December 2012, subject to customary closing conditions.
Key Highlights
- 1Verizon to settle approximately $7.5 billion of pension liabilities through an annuity contract with Prudential.
- 2The agreement covers pension payments for approximately 41,000 Verizon management retirees receiving benefits before January 1, 2010.
- 3Prudential will assume the obligation to make future annuity payments, replicating current benefit levels and rights.
- 4Retirees will not need to take any action; benefits will continue without interruption.
- 5Verizon expects to contribute approximately $2.5 billion to the pension plan in connection with the transaction.
- 6The transaction is anticipated to close in December 2012, subject to closing conditions.
- 7This move is a de-risking strategy to reduce financial volatility related to pension obligations.