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Prudential Retirement’s first-of-its-kind approach opens a new path for plan sponsors looking to transfer all defined benefit risk to insurers.
Prudential Retirement, a business unit of Prudential Financial, Inc. (NYSE: PRU), has completed the firm’s fourth and final pension de-risking transaction with Boise, Idaho-based wood products manufacturer and building materials distributor Boise Cascade Company (NYSE: BCC).
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Alex Hyten, Head of Structured Settlements, Prudential Retirement (Photo: Business Wire)
"The final transaction in our three-year engagement with Boise Cascade is significant because it represents the first time a plan sponsor has been able to guarantee the cost of a plan termination early in the lengthy termination process by transferring all of the risks to an insurer," Peggy McDonald, senior vice president and actuary, Prudential Retirement’s Investment & Pension Solutions, said.
Prior to this final transaction, Boise Cascade had transferred U.S. pension plan assets to Prudential in three phases: $152 million in April 2018; $125 million in August 2018; and $20 million in September 2019.
The transaction used one of three structures for plan termination examined by McDonald and the Prudential Retirement Pension Risk Transfer team, to be detailed in an upcoming white paper "Unlocking Value in Pension Plan Terminations." In the paper, McDonald underscores how plan sponsors need a new blueprint to reduce risk during the plan termination process.
"Terminating a pension plan is risky business and, up until now, plan sponsors haven’t been able to calculate the actual cost of unwinding a plan until the end of the termination process, which can take a year or more," McDonald said. "This approach provided Boise Cascade with cost certainty early in the process by securing a buy-in contract under which Prudential assumes the lump sum election rate risk."
Alex Hyten, who on June 2 was named head of Structured Settlements for Prudential Retirement, led the transaction.
"The long-term partnership between Boise Cascade and Prudential has allowed Boise to successfully wind down their plan in a manner and a time frame that was beneficial to them," Hyten said. "We are happy to develop solutions that help clients, like Boise Cascade, achieve their pension de-risking goals and secure those promises with a financially strong and experienced company like Prudential."
"Boise Cascade has been fortunate to partner with a market-leading firm like Prudential on our multi-year de-risking journey," Wayne Rancourt, executive vice president, chief financial officer and treasurer, Boise Cascade Company, said. "When we began thinking about transferring our legacy pension obligations, we knew Prudential would be able to provide great service and financial protection to our plan participants. Their willingness to help structure this last buy-in transaction has allowed us to eliminate the future funding uncertainties and focus on running our core businesses. We couldn’t be happier with the result."
To request a copy of Prudential’s upcoming white paper, "Unlocking Value in Pension Plan Terminations," contact Peter Patrician.
About Prudential Retirement
Prudential Retirement delivers retirement plan solutions for public, private, and nonprofit organizations. Services include defined contribution, defined benefit and nonqualified deferred compensation record keeping, administrative services, investment management, comprehensive employee education and communications, and trustee services, as well as a variety of products and strategies, including institutional investment and income products, pension risk transfer solutions and structured settlement services. With over 85 years of retirement experience, Prudential Retirement helps meet the needs of 4.6 million participants and annuitants. Prudential Retirement has $497.6 billion in retirement account values as of June 30, 2020. Retirement products and services are provided by Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford, CT, or its affiliates.
About Prudential Financial
Prudential Financial, Inc. (NYSE: PRU), a financial wellness leader and premier active global investment manager with more than $1.5 trillion in assets under management as of June 30, 2020, has operations in the United States, Asia, Europe and Latin America. Prudential’s diverse and talented employees help to make lives better by creating financial opportunity for more people. Prudential’s iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit news.prudential.com.
About Boise Cascade
Boise Cascade Company is one of the largest producers of engineered wood products and plywood in North America and a leading U.S. wholesale distributor of building products. For more information, please visit bc.com.
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Boise Cascade Company