DuPont Boosts Pension by $2.9 Billion | Chief Investment Officer

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.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

“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

A senior court judge in Florida has rejected a lawsuit that had challenged a half-cent sales tax intended to help pay for the city of Jacksonville’s unfunded pension obligations.

The tax was approved by a voter referendum last year, however, a lawsuit filed by five Duval County residents argued that the language on the ballot was so confusing and misleading that it failed to comply with state law requirements.

In his ruling, Judge Donald Moran Jr. said he saw no grounds to overturn the referendum.

“A court has a duty to only set aside an election when it finds substantial non-compliance with statutory election procedure and reasonable doubt as to whether the election expressed the will of the voters,” Moran wrote in his judgment. “In the instant case, plaintiffs have made unconvincing allegations of non-compliance and have demonstrated to the court there is not any reasonable doubt as to whether the voters were able to accurately express their will.”

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

Moran also denied the plaintiffs’ claims that city officials “made intentional representations and abused their authority” while asking the public to support the sales tax.

The tax was proposed to help the city eliminate its $2.86 billion pension debt, which has increased the city’s yearly pension costs to $290 million in 2017, from $78 million in 2008.

While the sales tax won’t kick in until after 2030, the city will start seeing financial relief next year from it because it will push back a significant portion of the city’s unfunded pension obligations to a later date. Future sales tax revenue will count as a current asset for the city’s pension plans. Revenues from the half-cent sales tax will only be used to pay down pension debt, and the tax will end when the plans are 100% funded, or by 2060.

According to the mayor’s office, Jacksonville owns 25% of the total unfunded pension liability of more than 400 cities and counties throughout the state, paying nearly $300 million for its three public pension funds. The funds include the Police & Fire Pension Fund, the General Employees Pension Fund, and the Corrections Officers’ Pension Fund. Jacksonville’s contribution to the three pension funds has totaled nearly 25% of the city’s operating budget.

The ruling comes not long after the Jacksonville city council unanimously approved in late April Mayor Lenny Curry’s proposal to fix the city’s pension problem, which includes closing its three pension plans to new employees.

Under the new legislation, the city will help compensate for the closing of the defined benefit funds by paying into defined contribution accounts for new hires at a rate of 25% of pay for public safety workers, and 12% of pay for general employees.

“This is not a perfect plan,” Councilman Al Ferraro said after Curry’s proposal was adopted by the city council. “This is the best we can do.”

Tags: city, Florida, Jacksonville, Pension Plans, sales tax