JC Penney Company, Inc. has announced in a press release that it will be significantly reducing the benefits obligations of the company's qualified pension plan.
JC Penney has also reached an agreement for The Prudential Insurance Company of America to settle a large portion of the company's remaining pension benefits obligations.
Under the agreement, JC Penney will purchase a group annuity contract from Prudential in exchange for Prudential paying and administering the future benefits payments to select retirees, according to the press release.
The agreement also provides for the JC Penney's pension plan to transfer a portion of its obligations and assets to Prudential.
Ed Record, the CFO of JC Penney, said in the press release that they are "grateful for all the contributions" the company's retirees have made.
"We are confident that Prudential, an expert in this field, will provide great service to our retirees receiving monthly payments," he said. "These actions not only continue to provide excellent benefits security for our retirees but also further the Company's objective of de-risking the Plan while improving the Company's long-term risk profile."
The Wall Street Journal adds that JC Penney has been struggling with large pension costs that's made even worse by declining sales that puts pressure on earnings.
The company has already, in the past, bought out employees' pension plan and offered early retirement.
JC Penney joins a host of other companies who are also unloading some of their future pension liabilities to insurers as a way to hedge against potentially disappointing investment returns or a sudden surge in costs, according to The Wall Street Journal.
Motorola Solutions, last year, has shifted its pension obligations to 30,000 retirees to Prudential, transferring about $3.1 billion U.S. pension liabilities.
The Wall Street Journal adds that this strategy has become more attractive to businesses that are facing risings costs due to a variety of reasons.
JC Penney said in the press release that the actions the company is taking will result in a reduction of 25 to 35 percent in its pension obligations.
The move will also reduce the number of participants in pension plan by 25 to 35 percent.
JC Penney also said in the press release that it expects the pension plan to be over-funded based on both accounting and ERISA.
