Kimberly-Clark Corp. (KMB) announced it has entered into purchase agreements with The Prudential Insurance Company of America and Massachusetts Mutual Life Insurance Company for group annuity contracts that will transfer payment responsibility for retirement pension benefits owed to approximately 21,000 Kimberly-Clark retirees in the U.S. to the two insurers.
Starting June 1, Prudential will begin making benefit payments to the affected retirees along with providing administrative services. Retirees will receive the same monthly benefit they were receiving from Kimberly-Clark.
While Prudential will be the annuity administrator for the benefit payments, each retiree's benefit will be split evenly between Prudential and MassMutual, enhancing the security of the retirees' benefits. By transferring the obligations to Prudential and MassMutual, Kimberly-Clark will reduce its pension projected benefit obligation by approximately $2.5 billion.
Kimberly-Clark expects to make a $400 million to $475 million contribution to its U.S. pension plan to support this transaction. This contribution will be funded by debt financing and is incremental to the company's previous assumption for 2015 global defined benefit pension plan contributions of up to $100 million.
As a result of the annuity purchases, Kimberly-Clark expects to recognize a non-cash pension settlement charge of $0.8 billion after tax ($1.3 billion before-tax) in the second quarter of 2015.
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