As chemical company DuPont continues to finalize its proposed $130 billion merger with Dow Chemical, it has boosted its pension contributions to $2.9 billion, which is a huge jump from the $230 million the company was required to fund for 2017.
“Our intent is simple,” said Benito Cachinero-Sánchez, DuPont’s head of human resources, in a letter to DuPont US pension fund participants. “As we move closer to our intended merger with Dow, and subsequent creation of three industry-leading companies, we are continuing to create a more secure future for our retirees by improving the plan’s funded status.”
But not all DuPont plan participants see the move in the same light. Some retirees reportedly believe that the company’s real motive behind the massive fund injection is to meet the necessary requirements to begin de-risking the pension plan.
De-risking is a way for a company to reduce the impact of pension obligations and funding requirements on its financial statements. A company can do this by converting the pension to an insurance annuity, or offering retirees a lump-sum payment instead of regular periodic payments. However, a company can’t transfer private pensions to an insurer unless the plan is fully funded, and some retirees are wary that this was the real motive behind DuPont’s recent pension contribution.
“In a merger like this, de-risking gets DuPont off the hook,” Dave Bartlett, a retired DuPont manager, told Wilmington’s News Journal. Bartlett said DuPont’s generous pension plan kept him at the company, despite comparable jobs offering higher salaries and bonuses. “I sacrificed on the front end so that I wouldn’t have to worry in my retirement,” he said. “Now I want them to keep the promise they made.”
However, DuPont refuted the idea that the pension contribution was a precursor to de-risking the fund.
“We have no immediate plans, and are not currently conducting any work toward annuitization of the pension plan,” a DuPont spokesperson told CIO in response to de-risking concerns. “The $2.9 billion contribution is part of our general trust fund investment portfolio and is not earmarked for any particular project.”
Under the terms of the merger with Dow, the combined company will be divided into three separate companies. However, it is unknown which of the three companies will be responsible for the employees’ pension plan.
Matt Maloney of risk management firm Aon Hewitt said that assuming a company is preparing to de-risk its pension fund because of a large pension contribution was “a very large leap to make.”
He said there was very little overlap among companies making significant pension contributions and those de-risking their pension plan. Maloney said one motive for a company making such a large contribution to its pension fund could be to take advantage of tax deductions before tax laws are changed. He also said that such a contribution is not uncommon, citing telecommunications giant Verizon’s $3.4 billion pension contribution during the first quarter of 2017.
Cachinero-Sánchez added that “from any vantage point, significantly reducing the underfunded pension liability is a positive. Be assured that continuing to fulfill our obligations to plan participants is a top priority.”
Tags: Dow, DuPont, Pension Funds