WILMINGTON – The global pharmaceutical giant AstraZeneca recently informed employees that it is pursuing a buyout of its $1.3 billion pension plan for U.S. employees by a third-party insurer, likely affecting an unknown number of Delawareans.
The news, first reported by Bloomberg, comes after the British-Swedish company reported booming revenues amid a year where it pushed its COVID-19 vaccine in international markets. The termination is effective March 31.
As of the end of 2020, AstraZeneca had 6,741 employees participating in the plan, but it has locked out new hires from the plan since July 2000 and frozen all new benefit accruals beginning in 2018. The company, formed through the merger of the Swedish Astra AB and the British Zeneca Group, established its U.S. headquarters in the Wilmington suburbs in 1999, but has also had a manufacturing plant in the Glasgow area dating back to 1971.
Since closing out new pensioners, AstraZeneca has directed U.S. employees to participate in employer 410(k) plans, with more than 20,000 current or former employees participating in that plan worth more than $6.3 billion.
For those employees benefitting from the pension plan, those benefits would soon be paid out by a yet-to-be-disclosed insurance company. AstraZeneca’s termination as administrator would not impact any participant’s eligibility to receive earned benefits, the company said. Only 724 employees are still actively participating in the plan.
“On Jan. 25, AstraZeneca informed participants of its qualified U.S. Defined Benefit Pension Plan that it is beginning a transition, which involves transferring the responsibility for payments, recordkeeping and asset management to a qualified, carefully selected insurance company with expertise in the long-term management of pension benefits,” a company spokesperson told Delaware Business Times when asked about the plan.
What is especially notable about AstraZeneca’s plans to terminate its pension plan is that it is more than 98% funded as of the end of 2020, a result achieved following the freeze of new benefit accruals, according to the company’s latest Form 5500. It has likely also benefited from a surge in company share prices following the November disclosure that it will begin profiting from its vaccine development and rollout.
AstraZeneca teamed with Oxford University to develop a COVID vaccine that is easier to store than its primary rivals, Pfizer-BioNTech and Moderna Inc. While it hasn’t been cleared for use in the United States, it’s been cleared by nearly every other country and produced revenue of $3.98 billion in the fourth quarter of last year, the company recently reported. The pharma giant also reported that five of its drugs cleared “blockbuster” status last year, with sales over $1 billion, and saw growing sales in its cancer and rare disease treatments.
At the same time as many companies are seeing spiking revenue growth though, many like AstraZeneca are shedding pension plans from their books and pushing employees into cheaper, less risky 401(k) plans. The total number of so-called “defined benefit plans,” or pensions, have fallen by 73% since 1986, according to data from insurance brokerage Willis Towers Watson Plc which targets the plans. In 2017, only 16% of Fortune 500 companies offered a pension plan to new hires, down from 59% among the same employers back in 1998.
It remains to be seen whether AstraZeneca’s decision will convince other large pharmaceutical firms to follow suit. Virtually all of the industry’s largest firms like Johnson & Johnson, Roche, Novartis, Merck, Bristol-Myers Squibb, Pfizer, GlaxoSmithKline, Eli Lilly, and more continue to offer pension plans despite those changes in the larger corporate landscape.
Transferring pension assets to insurance companies is an increasingly common way for companies to get rid of the responsibilities of managing the benefits but doing so also removes the failsafe of the federal Pension Benefit Guaranty Corporation, which guarantees private pension payments in emergencies. Layers of reinsurance and investments are typically created to help ensure the solvency of the benefit plan.
