Alcoa Corp. has entered into a deal with three large insurance companies to transfer more than $700 million in pension obligations related to its defined benefit plans in Canada.
The three insurance companies, Sun Life Financial, Desjardins Financial Security Life Assurance Co. and Industrial Alliance Insurance and Financial Services Inc., will begin making benefit payments to plan members by July 2018. The group annuity contracts cover about 2,100 retirees or beneficiaries.
Pittsburgh-based Alcoa, a major producer of aluminum and bauxite products, expects to complete the transfer to the three insurers later this month. As part of the annuity agreements, it will contribute about $120 million in mid-April 2018 to facilitate the annuity transaction and maintain the funding level of the remaining plan obligations. It expects to record a non-cash settlement charge of about $225 million due to the annuity transactions.
The $120-million contribution represents a portion of the US$300 million in added amounts Alcoa expects to make in 2018 to its U.S. and Canadian defined benefit pension plans. The company announced that the US$300-million figure in January as part of its report on its results for 2017. In that report, the company also announced changes to its pension framework. As of January 2021, salaried employees in the United States and Canada will cease accruing retirement benefits for future service under defined benefit pension plans. As a result, about 800 affected employees will transition to country-specific defined contribution plans providing for a three per cent employer contribution.
Editor’s note: Story updated on April 5 to note currency conversions to Canadian dollars for most figures as of the announcement from Alcoa on April 3.