Metallus to Purchase Group Annuity Contract for Pension Benefits
Metallus (NYSE: MTUS) announced an agreement to purchase a group annuity contract from Prudential to terminate the TimkenSteel Retirement Plan, settling around $121 million of pension obligations. This move impacts about 1,000 plan participants, with Prudential starting benefit payments on August 1, 2024. The transaction involves no cash contribution from Metallus and is expected to reduce its U.S. pension obligation by $124 million, reflecting a 20% reduction. Additionally, Metallus anticipates a $3 million non-cash pension settlement gain in Q2.
- Termination of the Salaried Pension Plan reduces U.S. pension obligations by $124 million, or 20%.
- Metallus expects a $3 million non-cash pension settlement gain in Q2.
- The transaction requires no cash contribution from Metallus.
- Prudential, a highly rated insurance company, will handle future benefit payments.
- Strengthening of Metallus' balance sheet through de-risking of legacy pension plans.
- Termination of the Salaried Pension Plan might create uncertainty for affected employees.
- Potential concerns about the transition process and customer service for participants.
Insights
The termination of the Salaried Pension Plan and purchase of a group annuity contract from Prudential is a significant financial maneuver for Metallus Inc. This action reduces their pension obligation by approximately
However, investors should be aware that while the transaction does not require a cash contribution, relying on existing assets for the annuity purchase could impact Metallus' liquidity. It’s important to monitor how the company's overall cash flow and investment strategies evolve post-transaction.
From a pension management perspective, the decision to annuitize the Salaried Pension Plan aligns with best practices for de-risking pension obligations. By transferring the responsibility of future benefits to a highly rated insurer like Prudential, Metallus Inc. mitigates the risk associated with managing these plans internally. This move ensures stable and reliable benefit payments for the approximately 1,000 participants, which is reassuring for current and future retirees.
This kind of transaction is becoming more common as companies seek to manage longevity risk and regulatory compliance more efficiently. Investors should view this action as a prudent step in long-term corporate risk management, enhancing sustainability and predictability of the company's financial commitments.
Prudential will pay future benefits under the group annuity contract starting August 1, 2024, for the remaining approximately 1,000 participants in the Salaried Pension Plan. Prudential is a highly rated insurance company and was selected by the Salaried Pension Plan's fiduciary, with the advice of an independent expert.
"Prudential was carefully selected as a highly rated and experienced retirement benefits provider," said Kris Westbrooks, Metallus' executive vice president and chief financial officer. "Following the Bargaining Pension Plan partial annuitization in 2022, the termination of the Salaried Pension Plan is another significant step towards strengthening our balance sheet and de-risking our legacy pension plans."
Benefits payable to Salaried Pension Plan participants will not be reduced as a result of this transaction. The group annuity contract is an irrevocable commitment by Prudential to make annuity payments to participants covered under the contract. All Salaried Pension Plan participants have been notified of the termination of the Salaried Pension Plan and those with remaining benefit entitlements will receive additional information in the future regarding the group annuity contract, including customer service details to address any questions they may have.
The group annuity contract will be purchased using existing assets of the Salaried Pension Plan and requires no cash contribution from the company. The termination of the Salaried Pension Plan is expected to reduce Metallus'
The Salaried Pension Plan's fiduciaries, with the assistance of an independent expert, conducted an objective and thorough analysis of Prudential to ensure it met all regulatory guidelines, has the sufficient capacity, creditworthiness, and administrative claims-paying capabilities to meet its obligations under the group annuity contract, and that the purchase of the group annuity contract was otherwise in accordance with applicable law and
ABOUT PRUDENTIAL
Prudential Financial, Inc. (NYSE: PRU), a global financial services leader and premier active global investment manager with approximately
ABOUT METALLUS INC.
Metallus Inc. (NYSE: MTUS) manufactures high-performance specialty metals from recycled scrap metal in
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SOURCE Metallus Inc.
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