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J.C. Penney makes big change to pension plan


Citing favorable market conditions and a desire to “de-risk” its pension plan, nearly 14,000 participants in J.C. Penney’s retirement plan opted to receive lump sum payments.

The deal is expected to reduce J.C. Penney’s $5 billion U.S. pension obligation by 25% to 30% and doesn’t require any cash contribution from the company. Approximately 12,000 retirees and surviving beneficiaries elected to receive voluntary lump-sum payments to settle the pension plan’s obligation to them and another 1,900 former employees of J.C. Penney who have deferred vested benefits also elected to receive voluntary lump-sums, according to details released by the company.

J.C. Penney’s benefit obligations for up to 43,000 other retirees and their beneficiaries will be assumed by The Prudential Insurance Company of America. A deal reached with Prudential calls for the purchase of a group annuity contract that will settle a substantial portion of J.C. Penney's remaining retiree pension benefit obligations, according to a statement by the company. After the closing of these transactions, which is anticipated later this year, the plan is expected to remain over-funded and the company expects that it will not be required to make cash contributions to the plan for the foreseeable future.

“We are confident that Prudential, an expert in this field, will provide great service to our retirees receiving monthly payments,” said Ed Record, J.C. Penney’s CFO. “These actions not only continue to provide excellent benefit security for our retirees, but also further the objective of de-risking the plan while improving the company's long-term risk profile."

The contract with Prudential calls for J.C. Penney to transfer a portion of its obligations and assets to Prudential who then pays and administers future benefit payments to select retirees. Prudential also will assume financial responsibility for making the annuity payments as provided in the group annuity contract.

According to J.C. Penney, the transactions may result in a non-cash pension settlement charge with the impact to be determined at the closing of the transaction. This charge will be excluded from the company's 2015 adjusted results.

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