Defined Benefit Demise Continues

According to Pension Benefit Guaranty Corporation (PBGC) data it is the eighteenth largest (by participant count) Single-Employer Defined Benefit Plan in the country and among the best funded. However, last week it came down:

Bristol-Myers Squibb Company (BMY) today announced it will transfer $3.8 billion of U.S. pension obligations through a full termination of its U.S. Retirement Income Plan (the “Plan”). The obligations will be distributed through a combination of lump sums to Plan participants who elect such payments, and the purchase of a group annuity contract from Athene Annuity and Life Company (“Athene”), a wholly-owned insurance subsidiary of Athene Holding, Ltd (ATH), for all remaining liabilities.

This transaction continues the Company’s pension de-risking strategy and actions, which began with the freezing of the Company’s U.S. Plan in 2009. This transaction reduces Bristol-Myers Squibb’s future risk and administrative costs while entrusting the pensions of Plan participants and their beneficiaries to a highly rated financial institution with expertise in the long-term management of retirement benefits.

Looking at their latest 5500 filing:

Plan Name: Bristol-Myers Squibb Company Retirement Income Plan
EIN/PN: 22-0790350/001
Total participants @ 12/31/17: 23,955 including:

  • Retirees: 1,351
  • Separated but entitled to benefits: 17,515
  • Still working: 5,089

Asset Value (Market) @ 1/1/17: 3,827,683,502
Value of liabilities using HATFA rates (6%) @ 1/1/17: $2,647,009,040 including:

  • Retirees: $195,215,062
  • Separated but entitled to benefits: $1,383,722,753
  • Still working: $1,068,071,225

Funded ratio: 144.60%
Unfunded Liabilities as of 1/1/17: N/A
Asset Value (Market) as of 12/31/17: $4,795,446,546
Contributions 2017: $200,000,000
Payouts 2017: $259,615,567
Expenses 2017: $0

Why is such a well funded Defined Benefit Plan terminating? My guess is that on their PBGC form 500 filing they will cite burdens of administration.

27 responses to this post.

  1. It is the risk of the unknown future. And the costs associated with that unknown risk/s. Private sector companies can still offer GREAT retirement/pension benefits by setting a high DC contribution. 15%, 20%, even 25% of salary into a DC plan will be more than adequate when combined with SS. And there does not need to be a match from the employee. Just have the employer make a large DC contribution, no problem….

    Reply

    • and what happens to this “no problem” when the market tanks by 50 percent like it did a decade ago?

      Reply

      • Posted by Anonymous on December 13, 2018 at 9:39 am

        One would hope that those close to retirement transferred into conservative investments. Don’t forget there is a cap of $19,000 a year with $5,000 catch up for 50 and over. What Rex proposes is ibasically almost like a pension. But in reality Most of the contributions come from the employees. Most companies offer a match up to a certain point. But that is usually much more modest. Most companies that still offer pensions make contributions based on current employee projections. That amount will fluctuate year to year as a percentage of employee salaries based on need (retiree payouts and investment performance or lack thereof).

        Reply

        • Posted by stanley on December 13, 2018 at 10:05 am

          “One would hope that those close to retirement transferred into conservative investments.”

          In today’s financial world, conservative investments are few and far between. Maybe cash, short duration treasuries, inverse etfs, gold and silver, g&s mining companies.

          In addition to that, I would argue that everyone should employ a good strategy–those close to retirement and those far away. It’s very discouraging to younger people to see their 401K convert to 201K or 101K accounts. When you wipe out 15 years of saving, it really hurts. (I’ve had losses, but nothing compared to the recent experience of some) If people don’t want to know much about investing and finance, there is the “dogs of the dow” approach to investing which has worked most of the time for generations.

          Reply

  2. Posted by Eric on December 13, 2018 at 8:30 am

    joelfrank:
    The central banks will surreptitiously continue to massively print money, purchase equities, and impose zero or negative interest rates ie the ZIRP or NIRP policies. They will continue to “screw” the seniors, who have invested their meager savings into CDs, yielding nothing.
    Wash, rinse and repeat…
    Lord knows, it is the zombie banks that need saving, not the retiree senior.
    DC plans will follow the upward trend of the equity markets, until no one wants to hold the US dollar anymore. Most funds are held in an S&P 500 index that the Fed will continue purchasing.
    The “Plunge Protection Team” or the President’s Working Group on Financial Markets would not let a 50% collapse in the stock market occur. People would leave their homes with pitchforks and call for an abolition of the Fed. Also remember, that most people have either nothing or next to nothing saved anyway. The US has morphed into a Third World nation. Read the stats on savings.
    Eric

    Reply

  3. Posted by geo8rge on December 13, 2018 at 8:55 am

    “Funded ratio: 144.60%” Does that mean that to accept the risk associated with a pension plan Athene requires an extra 45% factor of safety on top of what I assume is an honest actuarial assessment. I have to assume that if BMS could have gotten away with less than 45% overfunding they would have done it.

    Or did the Athene actuaries examine the pension scheme and come to the conclusion that the plan was not 145% funded but much closer to 100% funded?

    Athene is based in Bermuda. But BSM is based in NY state. Who is regulating this? Is NY state? In effect, BSM changed regulators from the Fed Gov to NYS or Bermuda. Does NY State back up this annuity and what is their premium?

    I wonder what would happen if NJ solicited a bid for an annuity to replace the pension scheme?

    Reply

  4. Posted by Tough love for tough love (and rex too) on December 13, 2018 at 1:52 pm

    Hey TL,
How could anyone tire of your one line of thinking? LOL, I laugh so much reading pretty much the same thing over and over. For everyone on this site, TLs single line of diatribe is truly truly barren. Barren from where it springs and barren for how much it lacks some of the fundamental ideas that form the basis of the republic. Help be thy brothers keeper…or TLs version, sc4ew everyone else. See, TL gets on here talks about forcing a minority of workers into abject poverty, at the same time as a self employed business person sucks tax revenues from the state through the largess of the tax code that allow s/e business owners to write off air. Yeah, you took a risk and deserve the goods, but you and I both know how much is skimmed from the coffers by those deductions that stretch off into the endless sunset. Empty. Immoral. About taking from someone else but not me. Just to quiet your paranoia, I’m private. I’m sure I’ll get paragraphs of the same. Barren they are and barren at the core is what drives them out.
    The other side of TL’s coin is that while the middle has been gutted over the last 25 years, it’s a race to the bottom. Don’t you know? TL believes you should be grateful to be a (wage) slave and pay your employer for the right of giving up you wages for free. Serf. Those publics should to be brought down to everyone else’s level…spoken like a s/e owner siphoning off funds from the middle through the largess of the (tax) code. Haven’t you read (TL)? They’re coming with pitchforks for the likes of you and me.
    Not sure if you read the NJScotus position, they won’t insert themselves into the legislative process, the language of the majority position stated the pubs have ALREADY earned their wages that are to be paid. Where oh where will the money come from indeed. As I have said over and over, the fed will not bail the state. The state chooses politically to ignore a funding item until it’s a crises. It’s a shame for ALL of us they turn their backs on all of us. (Calm down TL, I’m private) In order to cover the pensions the state will shift pubs onto the exchanges. Pubs will most likely need to face reductions of 30% in order to keep the funds realistically solvent. Folks on here inflate numbers which are actuarial low, into a place where no solutions exist, while larger numbers make them feel better about walking away from responsibility. Taxes will be raised and/ or assets (like the TP or GS Pkwy) will be sold or shifted as dedicated funding. Corzine’s idea of securitizing flows from the roads either for the Transportation Trust fund or towards pensions was ahead of its time even though it still remains unpalatable politically.
    A solution that is fair to the existing pubs who have earned their wages and is generationally fair to those behind is a moral way forward. TL can crow all she wants that pubs should get less, but as I said above, she thinks we should all accept this slide we are on to the bottom. The pitchforks are coming if those who know continue to want to pretend not to see and listen to the echo chamber as the footsteps only get closer.

    Reply

    • Posted by stanley on December 13, 2018 at 2:46 pm

      tl to tl: If being self employed is such a piece of cake, why don’t you give it a try? I triple dog dare you! Write off air! Right! Trying paying both the employer and employee social security tax. Try complying with mountains of regs. Or maintaining worker comp coverage, or family leave, or playing playground monitor for childish employees. Don’t allow a hostile work environment…and on and on.

      I can’t believe that anyone who can read and write would actually write the above post. Anyway, if you think it’s easy to be an employer, by all means put your time and capital to risk and rake in all of the easy profits. It’s still a somewhat free country, show what you can do.

      Reply

      • Posted by bruce paterson on December 13, 2018 at 3:40 pm

        maybe thats why tl/tl works in the public sector. The original TL stays on message, thats for sure, drum beat somewhat monotonous…maybe in the future TL can just link to a document that explains his stance….would save lots of paragraph space on JB1’s site, and alleviates the old time readers from reading his points over and over thinking he is adding something different.

        Reply

      • I can’t believe that anyone who can read and write would actually write the above post. Anyway, if you think it’s easy to be an employer, by all means put your time and capital to risk and rake in all of the easy profits. It’s still a somewhat free country, show what you can do.
        El Guapo lives in the Fairyland of GOV EMPLOYMENT. He is clueless about the real world. EG thinks you can open a hot dog stand and make $1 million a year in clean easy profit! But he knows only the artificial word of Gov employment, where there is no free market forces, not market forces to control insane compensation and EG is completely clueless about economics…..

        Reply

        • Posted by El Gaupo on December 15, 2018 at 9:33 am

          Guess I’ll figure it out in a few years when I work for an insurance company reconstructing motor vehicle crashes as a certified expert. lol. Boom!! I bet you make good weiners though. Real quick—give me a slide to stop formula used to determine speed of a vehicle at a crash seen. Haha. Btw, I’ll take mustard and kraut on my doggie thanks. I can’t stand people who put ketchup on them. And see TL, an unprovoked attack.
          Like Grandpa Joe says in Willie Wonka “doesn’t matter how he got the load of bread(pension), point is he got it”.

          Reply

          • Posted by El Gaupo on December 15, 2018 at 9:45 am

            My stock answer when someone says “oh you get paid big bucks to be a cop in a rich town”. “Someone’s got to do it, it might as well be me”. And pat them on the shoulder and we get a good laugh.
            Geez TL. This Rex fellow attacked me even though I was commenting on the post about you being monotonous. You gotta admit that’s true. Lol. Anyway, maybe he has a thing for you. Two peas in a pod? Maybe he wants to leave the basement? Or maybe….he IS you!! Only commentator on here who comes to your defense and the only one you never engage directly. Only me when I defend myself against his(your) unwarranted attacks.

  5. Posted by Anonymous on December 13, 2018 at 2:01 pm

    “…at the same time as a self employed business person sucks tax revenues from the state through the largess of the tax code that allow s/e business owners to write off air.”

    I stopped reading after this idiotic statement.

    Reply

    • Posted by El Gaupo on December 13, 2018 at 2:49 pm

      Jeez TL….and I thought I was tough on you. Lol. Say it ain’t so….

      Reply

      • Posted by Tough Love on December 13, 2018 at 3:23 pm

        That was one heck of a LONG comment from TL for TL …… especially since I haven’t even added a comment on THIS post. I guess (NOT wanting to read) the TRUTH hurts.

        Sounds like a lot of pent-up anger (if HE isn’t now-collecting or expecting to collect a Public Sector pension, assuredly someone in his immediate family is).

        It also sounds like a refill on his meds would be a good idea.

        Reply

  6. Posted by PaulB on December 13, 2018 at 7:12 pm

    It’s my understanding that Bristol Myers is still liable for their pension obligations should the insurance company fail. Can any of you confirm this? Would BMS have to show this contingent liability as a footnote on their statement?

    Reply

    • Posted by geo8rge on December 15, 2018 at 8:02 am

      I could not find a link that directly answered your question.

      For questions about the BMS annual statement, you can contact BMS investor relations. Looking at their current annual statement I did not see any mention of annuities, I think they purchased one from Prudential a while back, but I could be mistaken.

      You can also contact your state insurance department or the state with jurisdiction for the pension. IM (worthless) O, at the current time the annuity is an insurance contract so BMS is still responsible for the underlying risk. But Athene is considered well funded so BMS will not have to consider it a liability. The annuity is supposed to be backed up by the money BMS turned over to Athene, and if that is not enough Athene’s own resources, and if that is not enough the resources of the state regulator and I believe finally BMS (but cannot find a link that makes that clear)

      I don’t know what happens if BMS disappears, is broken up, or whatever while Athene is considered healthy and then Athene goes bust. But at the current time there are more assets backing the annuity, not less.

      These 2 organizations might also have a definitive answer.

      ERISA Protections for Annuitants in Pension De-risking Transactions
      https://www.acli.com/-/media/ACLI/Files/Pension-DeRisking-Public/ERISA-Protections-for-Annuitants.ashx?la=en

      What happens when a pension is transferred to an insurance company?
      http://www.pensionrights.org/publications/fact-sheet/what-happens-when-pension-transferred-insurance-company

      While contacting BMS investor relations or the state regulator might seem like a dead end, I think they will respond to you reasonably quickly.

      ERISA complaints and questions:
      https://www.dol.gov/agencies/ebsa/about-ebsa/about-us/what-we-do

      It might also be possible to contact your congresspersons.

      Reply

  7. Posted by stanley on December 14, 2018 at 8:55 am

    “It’s my understanding that Bristol Myers is still liable for their pension obligations should the insurance company fail.”

    I would be very surprised if that is the case. It would be great for the retiree if BM did guarantee performance, but foolhardy on the part of BM. They would cosign with no control over the insurance company’s business decisions. And, relief from responsibility for the pensions is why BM would choose to unload the program. Boeing spent $1B to build a new factory in SC primarily to encourage (force) employees to accept the demise of the defined benefit pension.

    Reply

    • Posted by El Gaupo on December 14, 2018 at 10:25 am

      God bless the working stiff!!!!

      Or put another way…..the richer Trump, Bezos, Gates, Ellison, etc are the better it is for the average Joe. Lol.

      Reply

      • Posted by stanley on December 14, 2018 at 3:05 pm

        Constable, neither you nor Big Steve are up to speed on the value of capital to the non-owners. Fortunately, both of you have normal brains so I’ll leave you to ponder the issue.

        Reply

        • Posted by El Gaupo on December 14, 2018 at 5:25 pm

          Funny how when the rich get richer, as they have been for decades, you have been banging the drum louder about folks suffering and having lower standards of living. the bunker , doomsday, grab your gold etc. why is that the case?? Bezos is killing it. It should be lifting all boats no? Hmmmm….

          Reply

          • Posted by stanley on December 15, 2018 at 9:28 am

            “Funny how when the rich get richer, as they have been for decades…”

            Government intervention in the financial markets ALWAYS favors the speculator class. Fiat money, falsified interest rates, expansion and contraction in credit markets mandate that a person understand the forces at work or get left behind. What is the alternative? Government control of everything? Marxism? Or, outlawing government involvement in markets. Those are our choices, essentially and Marxism has been demonstrated a failure everywhere it’s been tried to the extent it has been tried. And staying on our present tack ensures that the goods going to the well-to-do will get worse.

            One hundred years of modern liberalism have put the screws to the American people. But capital in the most able hands helps to keep the wolf from the door. It doesn’t weigh on the general public. Let me point out that the rich guys spend a small part of their wealth on consumption. Most is spent on producing more wealth which puts it into the service of all.

            Government entities are consuming so much and do almost all that they can to further hamper production that there is little left for those at the lower end of the income scale.

          • Posted by El Gaupo on December 15, 2018 at 9:57 am

            Not disagreeing with you. There is such much fraud and waste in government. The thing is much of government is bought and paid for by corporate America. The rest panders to the poor. The rich politicians (both red and blue) give just enough free crap to the poor to keep them from revolting. And you and I pay for most of that. Every level of government has it. But to honestly think that the average worker has it better than those 40 years ago is a bit much. Most families could get by on one income and most had a pension. Part of the problem has also been predatory lending and a desire to keep up with the Jones’s. Most millennials DO NOT feel the need to keep up with the Jones’s. That is both good and bad.
            I have always felt that having the “I’m just lucky to have a job” mentality is a loser mentality. One should always be trying to better themselves during their working career.
            Look I am by no means a socialist, we have a great economic system here. The best. I just think that the income distribution is so skewed to the rich compared to years ago that it screws the middle class. There will always be poor folks that need assistance. So the money is driven from the middle class and into the hands of the few.

  8. Posted by geo8rge on December 15, 2018 at 8:11 am

    I was nosing around the BSM 2017 annual statement and found 3.5% discount rate and 7.8% expected long-term rate of return. Would the 7.8% return explain why the annuity required 145% funding?

    The yield on high quality corporate bonds that coincides with the cash flows of the plans’ estimated payouts is used in determining the discount rate. The Citi Pension Discount curve is used for the U.S. plans. The present value of benefit obligations at December 31, 2017 for the U.S. pension plans was determined using a 3.5% discount rate. If the assumed discount rate used in determining the U.S. pension plans’ projected benefit obligation at December 31, 2017 was reduced by an additional 1%, the projected benefit obligation would increase by approximately $950 million.

    The expected long-term rate of return on plan assets is estimated considering expected returns for individual asset classes with input from external advisors. We also consider long-term historical returns including actual performance compared to benchmarks for similar investments. The U.S. plans’ pension expense for 2017 was determined using a 7.8% expected long-term rate of return on plan assets. If the expected long-term rate of return on plan assets used in determining the U.S. plans’ pension expense for 2017 was reduced by 1%, such expense would increase by $40 million.

    https://s22.q4cdn.com/537531307/files/doc_downloads/Annual-Report.pdf

    Reply

    • If the assumed discount rate used in determining the U.S. pension plans’ projected benefit obligation at December 31, 2017 was reduced by an additional 1%, the projected benefit obligation would increase by approximately $950 million.
      The current yield on a 10 Y US Treasury is 3%, why would it be below 3%??

      Reply

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