(Updates with comment from Prudential in sixth paragraph.)

(Bloomberg) -- J.C. Penney Co. reached a deal with about 12,000 retirees and beneficiaries to accept a lump-sum payment and settle pension obligations, helping reduce the amount that the department-store chain will have to pay by as much as 35 percent.

The company won’t need to make any cash contribution, and Prudential Financial Inc. will settle a “substantial” amount of pension benefit obligations, J.C. Penney said in a statement Friday. It has $5 billion in U.S. pension obligations.

The 113-year-old retailer is part of a growing list of companies rethinking their pension plans. Kraft Heinz Co., the food giant created out of a merger this year, said last month that it was trying to shift some retirees away from pension plans under a voluntary program. Former Kraft employees who have a future estimated benefit value of under $2,500 a month at age 65, and have not started receiving the money, can receive an immediate lump-sum payment, the company said.

Prudential, the second-largest U.S. life insurer, also has struck multibillion-dollar deals with companies such as General Motors Co. to assume the risk in case market returns are inadequate or beneficiaries live longer than expected. The agreements add to assets under management for insurers, which already oversee billions of dollars in bonds and handle risks tied to life expectancies.

The final size of the transaction between the companies will be determined at closing, based on the funding status for J.C. Penney’s plan at that time, according to Peggy McDonald, senior vice president for Prudential’s Pension & Structured Solutions business.

“J.C. Penney had a unique objective to maintain their over- funded pension status while not requiring a contribution to the plan,” McDonald said in a phone interview. “There were a number of complexities associated with this structure, but we worked through them very much together with J.C. Penney.”

The deal is expected to be completed in December, although market conditions could force closing to be extended to 2016, according to the statement. Morgan Stanley advised the retailer, according to people familiar with the transaction who asked not to be identified discussing a private matter.

At J.C. Penney, Chief Executive Officer Marvin Ellison is working to cut costs and win back shoppers after years of red ink. In August, the company posted a narrower quarterly loss and said the back-to-school season was off to a good start.

J.C. Penney rose 7 percent to $9.92 on Friday in New York, extending its gain for the year to 53 percent. Prudential dropped 1.2 percent, and has lost 17 percent since Dec. 31.

--With assistance from Thomas Mulier in Geneva and Craig Giammona in New York.

To contact the reporters on this story: Matt Townsend in New York at mtownsend9@bloomberg.net; Katherine Chiglinsky in New York at kchiglinsky@bloomberg.net To contact the editors responsible for this story: Dan Kraut at dkraut2@bloomberg.net; Nick Turner at nturner7@bloomberg.net; Matthew Boyle at mboyle20@bloomberg.net Nick Turner