J.C. Penney is buying a group annuity contract to provide pension benefits to up to 43,000 retirees and their beneficiaries.
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The company announced actions that will significantly reduce the benefit obligation of its qualified pension plan without requiring any cash contribution from the company.
JCPenney recently completed a lump-sum offer for select participants in the plan, and it has also entered into an agreement with The Prudential Insurance company of America to purchase a group annuity contract that will settle a substantial portion of JCPenney's remaining retiree pension benefit obligations.
After the closing of these transactions, which is anticipated later this year, the plan is expected to remain over-funded on both accounting and ERISA bases, and the company expects that it will not be required to make cash contributions to the plan for the foreseeable future.
Approximately 12,000 retirees and surviving beneficiaries elected to receive voluntary lump-sum payments to settle the plan's pension obligation to them.
In addition, approximately 1,900 former employees of JCPenney who have deferred vested benefits elected to receive voluntary lump-sums.
The response deadline for the lump-sum offer was September 18, 2015, and the plan expects to make the lump-sum payments in November once the final settlement amount is determined.
In conjunction, JCPenney has entered into a definitive agreement to purchase a group annuity contract from Prudential, under which Prudential will pay and administer future benefit payments to select retirees.
The agreement provides for the plan to transfer a portion of its obligations and assets to Prudential, and the transfer would leave the remaining plan over-funded on both accounting and ERISA bases.
The annuity transaction is expected to close in December 2015, and its final size is subject to the condition that the plan remains overfunded at closing.
If market conditions warrant, closing may be extended to 2016. After closing, Prudential will assume financial responsibility for making the annuity payments as provided in the group annuity contract. ■