On Dec. 4, 2017, Molson Coors transferred nearly $1 billion in pension liabilities to an annuity with Athene Annuity and Life Company, according to a report by “Pensions & Investments.” The $900 million amount represents almost a third of Molson Coors’ total pension assets.
Athene will assume responsibilities for making the monthly payments to more than 6,000 beneficiaries of the Molson Coors pension plan, reported “Business Wire,” beginning on May 1, 2018.
During the second-longest bull market in U.S. history, with expected rises pending on the passage of current tax legislation, why would Molson Coors choose to place this money in an annuity instead of maximizing its returns in the market?
As CEO/Founder of Denver-based Tucker Financial Solutions, Karlan Tucker reviews financial news as part of a growing overall trend. “Corporations are often more sensitive to market risks than individual investors,” said Tucker. “This is why you’re seeing many of them using the safety of annuities to shield themselves from pension liabilities and risks of the coming bear market taking back nine years of gains.”
Pensions & Investments reported that in November CBS Corp. transferred $800 million in its pension plan liabilities into a group annuity. The transfer accounts for about 20% of the broadcaster’s total plan liability.
When Tucker reviews the large gap between most pension contributions and the full funding amount for the plans, he sees a flaw even a bull market is unable to resolve.
“One of the serious issues,” said Tucker, “is that pensions, in general, need a 7.5% return on investment to maintain funding levels. The market has delivered a 5.3% average annual return for the century beginning in 1900 and only 4.2% since 2000. To capture that additional 3.5%, many pension fund managers dramatically increase risk in the portfolio, which can backfire when the market dips, or worse, when a coming bear market with increased corporate bond defaults occurs, which in turn may trigger pension defaults.”
Pensions & Investments reported that the LIMRA Secure Retirement Institute compiled data showing pension transfers to annuities of $4.1 billion just in the second quarter of 2017, well above the $1 billion for the same period in 2016. Additionally, the institute cites that industry experts are expecting a total of $18 billion to $20 billion by the end of 2017, compared to $14 billion in 2016.
Tucker sees the trend continuing: “Annuities are instruments for protecting your premium and delivering income. What corporations are now doing isn’t dramatically different from what we advise our customers to do when we work on retirement plans with them. Many of the people we work with don’t have a pension paying them an income or a lump sum. But they can still buy an annuity that, for a lump sum of cash, guarantees monthly income for the rest of their lives. Perhaps the best part is that while they receive their monthly checks they still own and control the lump sum they invested. In an earlier version of America, this is the role pensions used to perform."