J.C. Penney Cuts Pension Plan Obligation--Update

By Lisa Beilfuss 

J.C. Penney Co. said Friday it would cut its $5 billion pension obligation up to about a third, through a lump-sum offer to participants in addition to a deal with Prudential.

The Texas-based retailer has struggled with large pension costs that have coupled with dwindling sales to pressure earnings. The company has in the past bought out employees' pension plans and offered early retirement.

J.C. Penney joins a host of other companies moving to unload some of their future pension liabilities to insurers. To companies, it is a way to hedge against potentially dour investing returns or a surge in costs; for insurers, it is a quick way to add billions of dollars in assets.

Last year, Motorola Solutions Inc. shifted the pension responsibilities for 30,000 retirees to Prudential, transferring about $3.1 billion in U.S. pension liabilities. That followed moves in prior years by General Motors Co. and Verizon Communications Inc.

The funding strategy has become more attractive to businesses facing costs that are rising for a variety of reasons, including regulatory changes.

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.

Shares in the company, down about 4% over the past year, were inactive premarket.

Write to Lisa Beilfuss at [e-mail]

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(END) Dow Jones Newswires

October 02, 2015 09:16 ET (13:16 GMT)

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