The 20 publicly listed US companies with pension liabilities exceeding $20 billion contributed more to their pension plans in 2017 than in any year ever, providing more than three times their mandated contributions, according to a report from Russell Investments.
“While total 2017 contributions were the single-largest ever recorded, just as noteworthy was the contribution above requirements,” wrote Justin Owens, director, client strategy and research, for Russell Investments, and author of the report.
The contributions, along with average asset returns of 13%, easily overcame a 45 basis point fall in discount rates used to measure liabilities. The group’s pension deficit was reduced to $157 billion from $189 billion in 2016, while the average global funded status rose to 84.4% from 79.0%.
“For the first time since 2013 (when rates rose and equity markets cooperated), funded status meaningfully improved,” despite discount rates falling, wrote Owens.
Each company in the so-called “$20 billion club” have collective global liabilities that represent approximately 40% of all the defined benefit pension liabilities held by US listed companies, according to Russell Investments.
“Recently many sponsors have been content to contribute to their DB plans only when they were required to,” wrote Owens. “In contrast, they took a proactive approach in 2017 by contributing discretionary amounts in order to satisfy objectives beyond the government-mandated minimum.”
According to the report, tax reform and PBGC premiums, which have risen sharply in recent years, were the main motivating factors that spurred the record year of contributions.
“But perhaps most noteworthy in 2017 is maximizing the federal tax deduction available to corporations prior to new corporate tax rates taking effect in 2018,” wrote Owens. “Some sponsors contributed in 2017 in anticipation of a lower corporate tax rate, while others will do so in 2018 prior to the 2017 plan year contribution deadline.”
As a result of the new tax regulations, several companies within the $20 billion club have announced significant contributions for 2018. The report cited General Electric, which announced late last year that it will contribute $6 billion, as well as Lockheed Martin and FedEx, which said they will make $5 billion and $2.5 billion in pension contributions respectively.
The payments of those three companies alone is greater than the total amount contributed by all 20 companies in 2015, while 2018 expectations for all 20 companies exceed $21 billion, which is higher than the totals for 2014, 2015, and 2016, said the report.
The $20 Billion Club
- 3M
- AT&T
- Boeing
- Dow Chemical
- E.I. du Pont de Nemours
- Exxon Mobil
- Federal Express
- Ford
- General Electric
- General Motors
- Honeywell
- IBM
- Johnson & Johnson
- Lockheed Martin
- Northrop Grumman
- Pfizer
- Raytheon
- United Parcel Service
- United Technologies
- Verizon Communications
Tags: $20 Billion Club, Funded Status, Pension, Russell Investments