J.C. Penney Cuts Pension Obligation By 33 Percent Through Employee Buyouts, Deal With Prudential

J.C. Penney announced on Friday that it would cut its $5 billion pension obligation by about 33 percent, through lump-sum buyouts with employees coupled with a deal with Prudential.

Prudential is fresh off a deal in which it took on $3.1 billion of Motorola’s pension liabilities; pension risk transfers are becoming increasingly common, and one Prudential study says 35 percent of DB plans in the U.S. are considering the option.

Details from the Wall Street Journal:

J.C. Penney said about 12,000 retirees and beneficiaries took the latest deal and opted for lump-sum payments, and roughly 1,900 former employees with deferred vested benefits also chose to take the offer. The company said payments will be made in November once the final settlement amount is determined.

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 transfer would leave the remaining pension plan overfunded, the company said. 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.

The moves will reduce J.C. Penney’s pension obligation by 25% to 35% and eliminate a similar percentage of participants.

J.C. Penney stock was up 3 percent as of 10 a.m. CST.

Photo by Sam Howzit via Flickr CC License