Last year Caitlin Long, head of corporate strategies and pension solutions at Morgan Stanley, said the ball was rolling when it came to pension risk-transfer deals. A year later she says the ball has picked up great velocity. Most CFOs have now been convinced that pension risk-transfer deals make financial sense, says Long, 46, who has a JD and a masters in public policy from Harvard University. Transactions are economically attractive to plan sponsors. She points to J.C. Penney Co.s cashless deal to shift its pension risk by buying a group annuity from Prudential Financial. Penneys stock rose 7.1 percent on the day of the announcement, 5.6 percent better than the S&P 500 that day. The cashless transaction shows that annuity contracts could be customized for different companies with different pension scenarios, says Long, who has been working on pensions at Morgan Stanley since 2007. Long, who has also advised Bristol-Myers Squibb Co., General Motors Co., Motorola Solutions and Verizon Communications, among others, on risk-transfer deals, points out that the Penney deal was unique. The company had already largely de-risked its pension, which was overfunded, with stable fixed-income instruments. Still, the market loved that the retailer was permanently shifting pension obligations to a third party. The hibernation strategy is still not one that is looked on by the market as favorably as settlements, Long says. Investors want these liabilities paid off; not just neutralized. She adds that companies are able to see real data points now that the equity market does reward these moves. Last year also saw smaller transactions, such as Timken Co.s purchase of a group annuity (also from Prudential) for about 5,000 retirees.
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