United Tech Slashes Pension Liabilities

(RTTNews) - United Technologies Corp. (UTX) said it plans to reduce the overall size of its pension obligations by about $1.77 billion in 2016.

The Farmington, Connecticut-based maker of Pratt & Whitney engines as well as Otis elevators plans to transfer management of its pension plans for retirees to a third-party and offer one-time lump sum payments instead of monthly pension payments.

The diversified conglomerate expects to incur a one-time pretax pension settlement charge of $400 million to $530 million in the fourth quarter of 2016. As of June 30, the company had future pension and post-retirement benefit obligations of $5.71 billion.

United Technologies said it will transfer about $775 million of its outstanding pension benefit obligations under the UTC Employee Retirement Plan and the UTC Represented Employee Retirement Plan to Prudential Insurance Co. of America (PRU).

The transaction is expected to close on October 12, with the purchase of a group annuity contract from Prudential, which already administers benefit payments for United Technologies retirees.

Prudential, which was selected after a competitive bidding process, will assume the obligation and administrative responsibility for retirement benefits owed to about 36,000 United Technologies retirees as well as surviving beneficiaries who currently receive a benefit of $300 per month or less from the plans.

United Technologies noted that the monthly payments to the retirees and beneficiaries included in this group will not be reduced and they will soon receive detailed information packages.

In addition, United Technologies has implemented a program that offers certain former U.S. employees or beneficiaries with a vested pension benefit an option to take a lump sum payment, instead of future monthly pension payments.

Upon completion of this program, the company expects about 10,000 participants to take the lump sum offer.

Payments will be paid from the retirement plans during late 2016. This action is expected to reduce United Technologies' pension benefit obligations by about $995 million by year-end 2016.

These actions are part of United Technologies' overall plan to de-risk its pension plans.