As U.S. companies look more closely at the risks involved in offering defined-benefit pension plans, Prudential Financial says it has pioneered a transaction, called Portfolio Protected Buy-in, that relieves plan sponsors of market risk and mortality risk.

In the first transaction, Hickory Springs Manufacturing Co. transferred $75 million of pension risk to Prudential, which will fund all future pension payments for its plan participants who were retired as of May 1. The assets sit in a separate account at Prudential, which guarantees that it will make all future pension payments for those retirees, no matter what return it realizes on the separate account.

From Hickory Springs' perspective, the separate account sits on its balance sheet as an asset, and that asset will always exactly match the related pension liabilities. "No other investment out there today is that perfect match," says Steve Ellis, CFO of Hickory Springs.

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Susan Kelly

Susan Kelly is a business journalist who has written for Treasury & Risk, FierceCFO, Global Finance, Financial Week, Bridge News and The Bond Buyer.