Reynolds sells part of pension plan Reynolds sells another part of its pension plan to insurer. Sale changes how plan is protected.

Reynolds American Inc. completed in June the sale of a second part of its pension plan to an insurer, according to the fiscal 2022 annual report of parent company British American Tobacco Plc. posted Thursday.

Affected are Reynolds retirees and beneficiaries who started receiving benefits on or before Jan. 1, 2021, "who are entitled to receive monthly gross payments of less than a defined threshold from the plans."

In October 2021, Reynolds reached an agreement with Metropolitan Tower Life Insurance Co. (Met Tower Life) under which the insurer would acquire over time the group annuity pension contract.

Met Tower Life assumed responsibility for the monthly payments for certain retirees and beneficiaries under the Reynolds defined benefit pension plans.

The first partial sale occurred in October 2021 with most affected Reynolds retirees, employees and certain beneficiaries notified in a Dec. 1, 2021, letter.

The second partial sale was completed in June with affected retirees, employees and beneficiaries being sent a letter at that time.

Reynolds has not disclosed when sale of the plan will be finished or the number of affected retirees and beneficiaries.

BAT said $1.6 billion of plan liabilities have been removed from the Reynolds balance sheet through the two partial sales, resulting in a settlement gain of $19.44 million.

"In total, approximately $3.5 billion of plan liabilities have been removed from the balance sheet in the U.S. under these partial buyouts," BAT said.

Reynolds said the decision to sell the contract sprang from the goal of "reducing pension-related risk and expenses, while entrusting your monthly pension benefits to a secure institution whose core business is managing retirement assets and administering retirement benefits."

Reynolds said changes to the pension plans "did not impact the amount of affected retirees' and beneficiaries' monthly benefits."

"In addition, our pension fund continues to be well-funded in respect of benefit obligations for remaining retirees and beneficiaries under the Reynolds American pension plans.

Startled retirees

When the first buyout occurred in October 2021, some local retirees said they were startled by the Dec. 1, 2021, letter.

What concerns local retirees, as well as gaining the attention of analysts, is that the transaction switches the group responsible for protecting the benefit plans.

Instead of the Pension Benefits Guaranty Corp. (PBGC) covering the plans, beneficiaries' benefits "will be protected under the State Guaranty Association in the state where you live."

In North Carolina, that is the N.C. Life & Health Insurance Guaranty Association.

Congress set up the PBGC to insure the defined-benefit pensions of Americans working for private companies. Defined-benefit pension plans are traditional pensions that pay a certain amount each month after retirement.

The agency currently covers about 40 million Americans and more than 26,000 pension plans. It receives no taxpayer funding.

By comparison, the N.C. guaranty association says on its website that "if your insurer is no longer able to fulfill its obligations, on-going benefit payments to you may be reduced or suspended by the courts in order to sort out the affairs of the financially troubled insurer."

"As a result, you may have to wait many months before the guaranty association is activated to provide benefit payments. Hardship provisions may be instituted by the receiver to continue benefit payments."

When the first buyout occurred, Met Tower Life had $37.4 billion in total assets as of June 30, 2021.

The amount of funds in the Reynolds pension plans is not clear.

Those Reynolds-specific totals have not been readily available since July 2017, when BAT paid $54.5 billion for the 57.8% of Reynolds it didn't already own.

Reynolds projected in its 2016 annual report making pension payments of $447 million in 2017, $443 million in 2018, $439 million in 2019, $436 million in 2020, $431 million in 2021 and a combined $2.08 billion for 2022-26.

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