IBM transfers $6bn in pension obligations to Prudential in latest risk-reduction move

IBM, a technology company, has filed an 8-K report outlining the transfer of a portion of its US defined benefit pension plan obligations to The Prudential Insurance Company of America, a provider of insurance and financial services.

In recent years, IBM has taken steps to reduce the risk associated with its retirement plans worldwide while strengthening their funding.

In September 2022, the company shifted $16 billion in US pension obligations to Prudential and Metropolitan Life Insurance Company. By the end of 2023, IBM’s US defined benefit pension plan was 123% funded.

With the Plan’s solid funding position, transferring additional pension liabilities and assets to an insurer is a logical step to further reduce risks tied to these plans. This move ensures IBM won’t need to make future cash contributions for the pension obligations being shifted.

On September 5, 2024, IBM and the Plan entered into an agreement with Prudential to purchase a group annuity contract. This contract transfers approximately $6 billion, or over 30% of the Plan’s obligations, to Prudential. These obligations cover pension benefits that began prior to 2016.

The purchase was completed on September 11, 2024, using Plan assets, requiring no additional contribution from IBM. Starting January 1, 2025, Prudential will handle pension benefit payments.

In Q3 2024, IBM expects to record a non-operating, non-cash, pre-tax charge of around $2.7 billion due to accelerated recognition of actuarial losses.

The final amount will depend on the completion of actuarial assumptions. This charge was not part of the GAAP financial outlook released on July 24, 2024, and will not affect IBM’s operating (non-GAAP) profit or free cash flow for the third quarter or full year of 2024.

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