The country’s largest corporate pensions had combined liabilities of $902 billion at the end of 2016, according to research from Russell Investments.
The 19 members of the so-called $20 billion club, a term coined by Bob Collie, a chief research strategist for institutional investing at Russell, saw both pension assets and liabilities slightly increase in 2016, a year that essentially mirrored pension performance in 2015.
Liabilities increased $21 billion in 2016 for the group. Almost $50 billion in pension benefits were paid out.
Assets increased $9 billion, to total $713 billion by the end of the year. Investments returned $53.4 billion in the funds.
The total funding deficit in the 19 plans was almost $189 billion by the end of 2016, an increase of $12 billion.
As has been the case for most of the past decade, interest rates had the greatest impact on pension performance.
The median discount rate used to value future pension obligations fell nearly 25 basis points, from 4.4 percent to 4.1 percent. That resulted in about $39 billion in added costs to valuing future pension obligations.
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Employers contributed $18.2 billion in required and discretionary contributions to their pension plans in 2016.
About half of the club made discretionary contributions to pension plans last year, meaning they contributed cash infusions greater than what is statutorily required by the Pension Benefit Guaranty Corp., the federal agency that insures private pension plans.
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The practice of contributing more than the required minimum may become more common for large pension plans, according to Russell’s analysis, in light of increases to PBGC’s variable contribution rate assessments, which index required payments to the degree a pension underfunded.
“Sponsors will increasingly choose to make discretionary contributions above the required minimum, in order to reduce their funding shortfalls,” writes Collie in Russell’s report.
Congress sets the rates applied on premiums to insure corporate pensions, not the PBGC.
In the 2016 general federal budget, the per-participant amount for the flat-rate premium was raised to $64, up from $57 in 2015. The variable rate was raised to $30 per $1,000 of unfunded liabilities, up from $24 in 2015.
For plans beginning in 2017, the per-participant flat rate jumps to $68. Next year it increases to $73, and for plans beginning in 2019 it increases to $78. The variable rate will be incrementally increased to $38 per $1,000 of unfunded liabilities by 2019.
Rates have nearly doubled for single-employer corporate pensions over the past six years.
In December, Federal Express said it would pitch in $1 billion in discretionary contributions, which will be financed by issuing new bonds specifically to fund the pension. General Motors issued $2 billion in new debt in order finance discretionary pension funding in 2015.
Investment returns in 2016 were between 4.7 percent and 12 percent for the pensions, depending on how individual plan portfolios were allocated.
Total pension liabilities of the $20 billion club peaked in 2014 at $933 billion, as most plans applied upward adjustments in mortality assumptions.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
