J.C. Penney joins a host of other… It has $5 billion in USA pension obligations.
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J.C. Penney Company said Friday it would slash up to a third of its $5 billion in pension obligations as the struggling department store chain seeks to lower costs amid crippling losses in recent years.
The 113-year-old retailer is part of a growing list of companies rethinking their pension plans. Former Kraft employees who have a future estimated benefit value of under $2,500 a month at age 65, and have not started receiving the money, can receive an immediate lump-sum payment, the company said. It is a win-win plan for both the parties; while for companies this is an approach to hedge against any possible headwinds in investor returns or a potential surge in expenditures, for insurance corporations, this is an easy plan to inject billions in asset value.
Meanwhile, the retailer struck a deal with Prudential by which J.C. Penney will transfer a portion of its obligations and assets to Prudential.
The new lump-sum offer and the Prudential agreement “further the company’s objective of de-risking the plan while improving the company’s long-term risk profile”, J.C. Penney CFO Ed Record said. Kraft Heinz Co., the food giant created out of a merger this year, said last month that it was trying to shift a few retirees away from pension plans under a voluntary program.
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The installments, to be made in November, will bring about a non-money benefits settlement charge, with the add up to be resolved after the exchanges’ end. The annuity transaction will close in December and its final size is subject to the condition that the plan remains overfunded at closing, according to the company. Penney has estimated the moves cut its future obligations 25 percent to 35 percent.
