West Fraser is a Vancouver-based forest products company that specializes in wood, pulp and paper and bioproducts. They employ over 6,000 Canadians across four provinces and 11,000 employees worldwide. They offer both defined benefit (DB) and defined contribution (DC) pension plans to their employees.
“Pensions are a key part of our total compensation strategy.” – Elaine Jensen
Providing pension benefits gives a competitive edge for recruiting and retaining employees, and it comes at a cost to the employer. West Fraser developed strategies to reduce pension risk and protect their employees financial future.
Their pension de-risking goals include:
Since 2017, West Fraser has annuitized over $1B worth of pension liabilities through six transactions, protecting over 3,300 members.
“After much analysis and discussion with consultants, annuities were identified as the right solution for our well-funded plans.” Elaine also shares that, “Annuity purchases have been an excellent tool to help us reduce our pension risk exposure by close to a billion dollars within the last 5 years.”
2017 – Their first transaction was an annuity buy-out for two small, closed plans. Two insurers split the transaction totaling $15 million. This was a learning experience for West Fraser that helped identify the steps needed to ensure successful transactions going forward.
2018 – West Fraser came to market with another annuity buy-out transaction. Two larger closed plans totaled $145 million, and the transaction was split between two insurers.
Building on this success, West Fraser came back to market later that year for two open plans. These Canadian salaried and hourly plans were West Fraser’s largest plans valued at $335 million. This annuity transaction transferred risk to two insurers, substantially reducing the number of retirees West Fraser was responsible for paying.
2021 – West Fraser confidently returned to market with a complex deal including seven open and closed plans. One of these plans was even a joint venture with a partner. Three insurers split the $300 million transaction.
2022 – Rising interest rates closed the pension funding gap and market conditions allowed for more affordable pricing. West Fraser de-risked an hourly open plan with inflation-linked liabilities worth $115 million with one insurer.
2023 – West Fraser came to market once again to purchase a $95 million annuity buy-out with one insurer. This transaction protects pension benefits for recent retirees of plans they previously de-risked with group annuity purchases.
Source: Sun Life estimates.
“There is no magic, there is no special sauce. We hope that others find something in our journey that they will find useful in theirs.” – Elaine Jensen
West Fraser is now a seasoned repeat buyer in the Canadian group annuity market. Here are some tips and learnings from their de-risking experience to date:
West Fraser transacted to free up time for their core business. Their repeat transactions speak to the benefits of including group annuities in a pension risk mitigation strategy.
“We are thinking about how we can add value for plan sponsors. Whether that is bettering our pricing or creating innovative solutions.” – Dhvani Desai, Director Client Relationships, DB Solutions
With experience de-risking several different plans, West Fraser recognizes there are more similarities between transactions than there are differences. Transacting as recently as fall of 2023, Elaine and her team continue to look for opportunities to de-risk West Fraser’s DB plans. They will move forward with the next transaction when it makes sense for their business.
