Corporate Pension Contributions Total $62 Billion in 2017

Corporate pension contributions totaled $62 billion in 2017, with seven employers contributing more than $2 billion to their plans, and another 10 adding at least $1 billion to their pensions’ coffers, according to consulting firm Milliman.

The annual study of the 100 largest defined benefit pension plans sponsored by US public companies found that the contributions pushed last year’s total assets to a record $1.55 trillion, and represent a 45% increase from the $42.6 billion contributed in 2016.

“There were incentives to increase contributions in 2017,” Zorast Wadia, co-author of Milliman’s Pension Funding Study, said in a release. “Additional contributions can both reduce the PBGC premiums paid by these plans, and allow them to leverage higher tax deductions in light of tax reform enacted at the end of 2017. It’s a trend that’s likely to flourish in 2018.”

Rising global equity markets contributed to strong investment returns in 2017, with the average plan earning approximately 12.7%, according to Milliman. Overall, investment returns added $175 billion to plan assets, far more than the $92 billion that was expected based on the companies’ long-term investment return assumptions.

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The funded ratio for the Milliman 100 plans rose from 81.1% in 2016 to 86.0% in 2017, an increase due largely to strong investment returns coupled with a modest decline in life expectancy assumptions, and the higher level of plan contributions as noted above. Funding ratios for plans ranged from a low of 62.4% for American Airlines to a high of 155.0% for NextEra Energy, Inc.

An additional factor contributing to the improvement in funded ratios was a modest decline in life expectancy assumptions due to participants and pensioners not living quite as long as previously predicted by the Society of Actuaries. This reduced the actuarial present value of the pension benefits, referred to as the projected benefit obligation (PBO).

Despite the strong equity markets and higher short-term interest rates, the discount rate declined during 2017 to 3.60%, down from the 3.97% rate a year earlier. As a result, the PBO of the Milliman 100 plans increased to an all-time high of $1.8 trillion (an $82 billion increase since the end of 2016). The report also points out that the $62 billion in contributions still left a $20 billion hole to be covered, which investment returns helped to overcome.

During 2017, pension risk transfers programs matured, with an overall acceptance by the participants and the financial markets, according to Milliman. It said it is unaware of any significant litigation by participant plaintiffs claiming they were harmed or otherwise disadvantaged by a pension risk transfer.

The study also said now “measurable reductions” in future premiums to be collected by the Pension Benefit Guaranty Corporation (PBGC), which it said experienced funded status gains in the federal fiscal year ending September 30, 2017. The PBGC recorded a 91% funded ratio for the plans that terminated and were sent to PBGC as the receiving custodian. In 2017, PBGC total premium income exceeded pension claims by more than $1 billion for the first time.

Tags: Corporate Pension, life expectancy, Milliman, Pension

The first day of Attorney General Andy Beshear’s lawsuit against Kentucky’s controversial pension bill pitted the Democrat, the son of a former governor, against Republican Gov. Matt Bevin. During the Thursday debate, a Franklin judge issued a timeline on the court’s ruling amidst a political battle over the legality of a bill that would switch the defined benefit plans of teachers to a hybrid cash-balance plan.

“I stand with and am fighting for teachers, police officers, firefighters, social workers, and other public servants. Gov. Bevin has filed this type of motion before and the courts have rejected it every time,” Beshear said in a Twitter video update regarding the Thursday hearing, during which presiding Judge Phillip Shepherd said a decision on the suit will be made in early June.

Bevin has had issues with the pension reform, saying in a recent announcement where he vetoed budgetary and tax bills that the pension bill was unable to do enough on its own.

Following the signing, which occurred within the final days of the legislative session and was included in a sewage bill, he has seemingly changed his tune over whether the bill can solve the Bluegrass State’s $40 billion-plus deficit. In a post-signing interview with WHAS radio, Bevin called the pension reform “a very good bill.”

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Following Bevin’s signing of the teacher-opposed pension reform into law last week, Beshear filed a lawsuit against the measure immediately. Beshear is looking to have the bill thrown out in court, challenging the legality of its passage as it was snuck into the sewage bill and was not given the opportunity for outside comment.

Teachers, who oppose the bill because it not only moves new hires to a hybrid cash-balance plan instead of a defined benefits plan, but also reduces sick days that can be used toward retirement, commenced a statewide strike against the new law on April 13.

In court, Beshear and Bevin’s lawyers clashed over the bill. The Courier-Journal reports that Beshear calling the measure a “secret backroom deal,” and claimed that the GOP-controlled legislature has abused the system. “We deserve better government,” said Beshear, whose father Steve, also a Democrat, was a former attorney general and the governor who preceded Bevin.

The publication reports that Bevin’s attorneys have filed a motion to disqualify the Beshear administration from the lawsuit over conflict of interest concerns regarding the pension reform. The governor’s lawyers responded by arguing that Beshear had actually broken the rules of the state’s attorney professional conduct code by providing legal advice on the bill to Kentucky lawmakers.

Bevin’s general counsel Steve Pitt said it “doesn’t matter whether it’s the attorney general or a regular practicing lawyer” in regards to giving lawmakers the legal advice. “You cannot provide legal advice to people and then have them accept that legal advice or reject that legal advice and then turn around and sue them,” he said.

Beshear does not believe he will be disqualified nor does he think the court will take the governor’s side in the pension reform.

“In the end, the Bevin administration simply wants to prevent me from fighting for teachers and firefighters, and for making them accountable,” Beshear said.

“Andy Beshear has become the first Attorney General in Kentucky history to claim that every law passed by a session of the state legislature is invalid,” said Pitt. “By placing politics above the law, the ‘chief law officer’ of the Commonwealth has called into question every act of the 2018 General Assembly.”

Judge Shepherd is expecting to hear arguments regarding the disqualification dilemma next week.

Tags: Andy Beshear, Kentucky, Matt Bevin, Pension, Pension Reform