Tax reform and increases in PBGC premiums prompted the largest U.S. corporations — called the $20 billion club by industry participants — to triple their mandated pension plan contributions in 2017, according to research by Russell Investments. They also went above and beyond the required pension contributions.
“Recently many sponsors have been content to contribute to their DB plans only when they were required to. 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 Russell Investments’ annual analysis of the $20 Billion Club, the publicly listed corporations with the largest pension liabilities.
“These contributions, in combination with respectable asset returns averaging 13%, easily overcame a 45 basis point drop in discount rates used to measure liabilities,” Russell Investments found. “The FYE 2016 deficit of $189 billion fell to $157 billion and average global funded status rose from 79% to 84.4%.”
Members of the $20 Billion Club include health care, aerospace, automotive, technology, oil & gas, logistics and chemical companies and tend to be an indicator of how pension plans are doing overall, according to Russell.
Premiums paid to the Pension Benefit Guaranty Corporation have skyrocketed the past few years so many companies have been trying to catch up with their contributions to avoid penalties associated with underfunded plans. Russell Investments pointed out that in 2017 the largest corporations wanted to maximize the federal tax deduction available to corporations prior to new corporate tax rates taking effect in 2018 under the Tax Cuts and Jobs Act of 2017. “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,” said Russell.
The highest pension contribution year before 2017 was 2012, a few years after the financial crisis hit and 2018 is expected to be another high contribution year.
According to Russell Investments, several members of the $20 billion club have said they will make massive pension plan contributions in 2018. General Electric said last year it would borrow to fund up by $6 billion and Lockheed Martin said it would make $5 billion in contributions. FedEx announced it would contribute $2.5 billion.
“The payments of just these three companies surpasses the total of all 20 companies in 2015, and 2018 expectations for all 20 companies exceed $21 billion, higher than the totals for 2014, 2015 and 2016,” Russell Investments said.
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