Corporate MovesJune 12, 2020

At Least Boeing’s Stock Isn’t in Its Pension Plan Anymore

Controversial 2017 contribution of $3.5 billion in company shares to the retirement program apparently was divested, long before the current share-tanking mess.

Reported by Larry Light

Boeing stock, down 45%, is not a great place to be, given the grounded 737 MAX jets and the decline of airline orders. That kind of outcome is why Boeing’s big dollop of company stock in its pension plan provoked a lot of angst.

In 2017, when the aerospace giant contributed $3.5 billion million of its stock to its defined benefit (DB) program, people evoked the Enron debacle, where a similar company allocation came to grief. Fortunately, it turns out that Boeing no longer has the stock in its plan, a good thing in light of the company’s poor fortunes of late.

Three years ago, Boeing’s shares were flying high and headed higher. But the anti-diversification move of tying retirees’ and future beneficiaries’ benefits partly to the company’s future performance (the stock peaked in early 2019) seemed a stratospheric folly.

Well, just for the record: Boeing’s pension plan got rid of the offending stock—from the looks of it in the latter half of 2017, after owning it for a short time. This illustrates the power of either good planning or good luck.

As of year-end 2019, the company’s plan—assets then: $61.7 billion—was 20.5% below fully funded. If the plan had hung onto the Boeing shares, it would be about $1 billion poorer today—this is the loss that the 2017 contribution of 14.4 million Boeing shares would’ve suffered. Now, that’s not much, just 1.6% of the fund’s assets.

But the optics of putting company stock into a DB plan were what touched off the carping three years ago. Critics hearkened back to Enron, the energy-trading company that collapsed in 2001. The Enron DB program held a large amount of company stock, but so did the 401(k) plan. All that was vaporized when the stock, once $90 per share, went to zero.

“It’s an irresponsible thing to do certainly from the perspective of the plan participants,” said Daniel Bergstresser, a finance professor at the Brandeis International Business School, of the Boeing stock contribution in 2017, according to Bloomberg News. “Ideally, you would like to put assets in the pension plan that won’t fall in value at exactly the same time that the company is suffering.” He didn’t respond to a request for comment now.

Nowadays, Boeing said its managers do not discuss individual assets in its DB holdings. But a review of company filings shows no employer stock at year-end 2017, nor in 2018 and 2019.

The company said in its 2019 filing that it “didn’t anticipate” pumping in more capital to the fund in 2020, although it might at a later date. Like many corporate plans, Boeing barred new employees from joining (as of 2009) and froze accrual of new credits for workers’ years of service (2014).

Boeing, once highly profitable, lost money in last year’s final quarter due to the MAX problem ($1 billion) and in this year’s first period also was in the red ($628 million) as COVID-19 decimated travel and airline orders. It suspended its dividend. Further, the company is laying off 13,000 workers

During Boeing’s April 27 shareholders meeting, management was asked: “Is there any risk to Boeing retiree pensions, given the current financial circumstances of the company?”

CEO David Calhoun replied: “No, there’s nothing I see in our future that would put risk into the pension plans.”