The Lincoln Electric Company, a subsidiary of Lincoln Electric Holdings, Inc., has entered into an agreement to purchase a group annuity contract from The Principal Financial Group to settle $425 million of Lincoln Electric’s approximate $900 million in outstanding U.S. pension obligations.
Under the agreement, The Principal will assume the obligation to pay future pension benefits starting November 1, 2015, for specified U.S. retirees and surviving beneficiaries who retired on or before June 1, 2015 and are currently receiving payments from Lincoln Electric’s U.S. Retirement Annuity Program (RAP).
Lincoln Electric says it has been committed to meeting its pension obligation responsibly, and it has contributed $375 million to its pension plans over the last ten years. Its U.S. pension plans are fully funded.
According to Lincoln Electric, the purchase of this group annuity contract allows the company to secure pension benefits for its approximately 1,900 retirees, reduce volatility in pension costs and funding requirements, while maintaining a fully funded plan for the remaining retiree obligations.
Once finalized, the annuity purchase is expected to reduce Lincoln Electric’s U.S. pension obligation by 47%. The purchase will be funded by existing plan assets and requires no cash contribution. The company expects to incur a non-cash pension settlement charge of approximately $132 million in the third quarter.
The Pension Benefit Guaranty Corporation (PBGC) has begun requiring reporting of pension risk transfer activity, fearing such moves will take away a major source of income for the agency.