BCE Inc. has struck a deal to transfer $5-billion in pension risk over to Sun Life Financial Inc.
Under the agreement, the media and telecom giant will transfer the longevity risk in its pension plan – the likelihood that pensioners will live longer – over to the insurance company.
Each month, the Bell Canada Pension Plan will pay premiums to Sun Life. At the same time, Sun Life will take over making the required pension payments to existing pensioners, and will continue to do so during their lifetimes. The companies say the arrangement is the first of its kind in North America.
The deal doesn't take the responsibility for the pension plan out of BCE's hands. The company will still be the provider of both defined benefit and defined contribution pension plans for employees.
These kinds of pension plan transfers are called "de-risking solutions" by the insurance industry, and have risen to prominence in the U.K. market. Some companies turn to these solutions when their funds have been battered by stock market volatility, prolonged low interest rates and longer life spans. Sun Life has been active in trying to build this market up in Canada.
In these agreements, the pension plan pays the insurer for their skill in assessing and managing the financial risks. This prevents the company from having to make additional cash contributions to the plan.
"Our agreement with Sun Life is another prudent step that BCE is taking to provide greater protection and improved security for Bell Canada pensioners," said Siim Vanaselja, chief financial officer of BCE and Bell Canada, in a statement.
More to come