Arconic Purchases Group Annuity Contract From MassMutual, Reduces $1B Pension Obligation


Aluminum sheet, plate, and extrusions provider Arconic Corp. (ARNC) has reduced its US pension plan obligation by about $1 billion by purchasing a group annuity contract from Massachusetts Mutual Life Insurance Company (MassMutual).

Arconic CEO Tim Myers said, “We are thoughtfully moving portions of our pension obligation to MassMutual, a highly-rated, well-respected insurance company, to preserve benefits to our retirees and their beneficiaries while maintaining the funded status of the remaining plan obligations.”

Myers added, “The transaction represents the latest step in our ongoing effort to reduce legacy liabilities and the volatility associated with factors beyond our control.”

Under the transaction, Arconic contributed $250 million to its US pension plans which ensured that the funding level is maintained for remaining plan obligations.

The company made this contribution from the $300 million in debt it raised in March.

Consequent to the transaction, Arconic expects to recognize a $450 million post-tax non-cash pension settlement charge in 2Q. (See Arconic stock analysis on TipRanks)

On April 23, J. P. Morgan analyst Michael Glick initiated coverage on the stock with a Hold rating and a $28 price target (5% potential downside).

Glick thinks aluminum will have a pivotal role in the green economy owing to its recyclability and low weight. Glick notes that the main theme in the production of aluminum will be removing carbon from the process.

The other analyst covering the stock, Deutsche Bank’s Chris Terry has a Buy rating on the stock with a $38 price target implying 28.9% upside potential.

The two ratings add up to a Moderate Buy consensus rating alongside an average analyst price target of $33 (11.9% upside potential). Shares have gained about 264.9% over the past year.

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