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IBM to Post $5.9 Billion Pension-Transfer Charge in Third Quarter

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(Bloomberg) -- International Business Machines Corp. said it would report a $5.9 billion one-time pretax charge in the third quarter as a result of an agreement to offload pension obligations to two life insurers.

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IBM and its pension plan administrator said the purchase of annuities from Prudential Financial Inc. and MetLife Inc. will transfer about $16 billion in pension obligations that cover about 100,000 participants and their beneficiaries. The annuities were funded directly by the assets of the pension plan and required no cash or asset contributions from IBM, the company said Tuesday in a regulatory filing.

The agreement is called a pension risk transfer. IBM, by buying annuities from the insurance companies, makes Prudential and MetLife responsible for paying the pension obligations. Insurers have been seeking out pension-transfer agreements in recent years as a way to accrue assets for investment. The popularity of the deals is also driven by employers that are looking to offload the long-term obligations.

IBM, in a blog post, said it has “taken actions over the last several years to reduce the risk profile of its worldwide retirement-related plans, while at the same time increasing the funded status of the plans.”

IBM said the charge will not affect its third-quarter or full-year operating profit or free cash flow.

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