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Kimberly-Clark (KMB) Will Transfer Pension Liability on 21k Employees (PRU)

February 23, 2015 9:04 AM EST

Kimberly-Clark (NYSE: KMB) announced it has entered into purchase agreements with The Prudential Insurance Company of America (Prudential) (NYSE: PRU) and Massachusetts Mutual Life Insurance Company (MassMutual) for group annuity contracts that will transfer payment responsibility for retirement pension benefits owed to approximately 21,000 Kimberly-Clark retirees in the U.S. to the two insurers.

Starting June 1, Prudential will begin making benefit payments to the affected retirees along with providing administrative services. Retirees will receive the same monthly benefit they were receiving from Kimberly-Clark. While Prudential will be the annuity administrator for the benefit payments, each retiree's benefit will be split evenly between Prudential and MassMutual, enhancing the security of the retirees' benefits. By transferring the obligations to Prudential and MassMutual, Kimberly-Clark will reduce its pension projected benefit obligation by approximately $2.5 billion.

"The group annuity contracts from Prudential and MassMutual, both highly rated insurance companies and experts in this field, provide excellent benefit security for our retirees, while further reducing non-core financial risk for Kimberly-Clark," said Chief Financial Officer Mark Buthman.

State Street Global Advisors (SSGA), a leading independent fiduciary, was appointed as the independent fiduciary representing the interests of the impacted retirees. SSGA evaluated the insurance companies that were available to provide annuities and the potential annuity structures. Based upon a number of factors, including the financial strength of insurers, SSGA determined that a transaction split between Prudential and MassMutual was the safest available annuity structure to provide retiree benefits. The annuity purchase will be funded with assets of Kimberly-Clark's U.S. pension plan.

Kimberly-Clark expects to make a $400 to $475 million contribution to its U.S. pension plan to support this transaction. This contribution will be funded by debt financing and is incremental to the company's previous assumption for 2015 global defined benefit pension plan contributions of up to $100 million. As a result of the annuity purchases, Kimberly-Clark expects to recognize a non-cash pension settlement charge of $0.8 billion after tax ($1.3 billion before-tax) in the second quarter of 2015. This charge will be excluded from the company's 2015 adjusted results.

The retirees whose benefits are included in this transaction will receive personalized communications with more details.

Deutsche Bank and Towers Watson served as strategic advisors to Kimberly-Clark in this transaction.



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