The 20 largest corporate pensions collectively contributed $37.5 billion to plans in 2017, triple what they were required to contribute under the law, according to analysis from Russell Investments.
The collective contributions were the largest on record, as sponsors were motivated to maximize tax deductions before the lower corporate tax rate delivered under the Tax Cuts and Jobs Act took affect.
Russell also cites increasing premiums to the Pension Benefit Guaranty Corp. as a reason for the record contributions. Rising premiums have motivated higher discretionary contributions in the past, as sponsors aim to fund-up pensions to avoid higher variable premiums.
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Russell's "$20 Billion Club" is comprised of 20 corporations that carry at least $20 billion in pension liabilities. All told, the plans hold $975 billion in liabilities, representing about 40 percent of all publicly listed corporate pension liabilities in the U.S.
Last year's contributions were about twice what they were in 2016. About $32 billion in contributions were made in 2012, the previous high over the past decade. UPS made a $7.5 billion cash contribution in 2017; Verizon made a $4.1 billion debt financed contribution; Boeing funded a $4 billion contribution with company stock.
The aggregate funded status of the $20 Billion Club improved from 79 percent to 84.4 percent. The funded status for the group exceeded 100 percent in 2007. Along with the record contributions, pensions also benefited from strong investment returns. Almost $90 billion in investment gains were realized among the 20 pensions, the most since 2005. Returns ranged from 7.8 percent in DuPont's plan, to 17.9 percent in Johnson & Johnson's plan. The average return was 13 percent.
The overall improvement in funded status came in spite of a 45 basis point drop in the discount rate used to factor future liabilities—lower rates translate to higher liability projections. The plans hold a $156.6 billion funding deficit, a $33 billion improvement from 2016.
Tax reform is expected to motivate further discretionary contributions in 2018, as sponsors have a window to deduct contributions against the previous 35 percent corporate tax rate.
General Electric has already announced a $6 billion contribution for 2018; Lockheed Martin will make a $5 billion contribution; FedEx will make a $2.5 billion contribution. Russell expects total contributions for the group to exceed $21 billion in 2018. The total liabilities—or what the plans owe to beneficiaries—is at an all-time high at $975 billion, due to what the investment firm says is the lowest discount rate in recent years. Risk transfer activity was relatively low in 2017.
Only two plans made risk transfer transactions greater than $1 billion, according to Russell's analysis.
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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.
