Timken Co., Canton, Ohio, expects to have fully funded pension plans to divvy up when it splits into two separate publicly traded companies, said Glenn A. Eisenberg, Timken executive vice president-finance and administration and chief financial officer, in an interview.
Two-thirds of the company's $3.1 billion in assets and $3.5 billion in liabilities in the company's defined benefit plan will go to the bearings and power transmission business that will continue to operate as The Timken Co. and one-third will go to the spinoff of the engineered-steel business into a new company that has yet to be named, Mr. Eisenberg said based on a preliminary estimates.
“The company has been funding its pension plans over the years and expects to be essentially fully funded by the end of the year,” Mr. Eisenberg said in a conference call for investors Sept. 6. “We do not anticipate making further discretionary contributions to the pension plans beyond what was contributed in the first quarter of this year.”
The company contributed $110.2 million to its pension funds in the first half of this year, including $105 million in discretionary contributions. Last year, it contributed $325.8 million to its pension funds.
Ward J. “Tim” Timken Jr., board chairman, said in the conference call that the company's expectation of reaching full funding will depend on interest rates not declining by the end of the year when the company values its pension liabilities.
“As a philosophy, if you will, as a premise from the board we want to make sure both companies have … essentially fully funded pension plans at the time that we separate into two independent companies,” Mr. Timken said.
Mr. Eisenberg said in the call that company executives are looking at the potential annuitization of pension liabilities to derisk the plans as well as to change the pension funds' asset allocation to lessen volatility. The pension funds' assets are allocated 44.6% to fixed income, 39.4% equities, 9.4% real estate, 2.6% combined in private equity, venture capital and distressed debt, 2.6% cash and 1.4% other, as of Dec. 31, according to the Timken 10-K.
Timken executives are working with consulting firms to assist in dividing the pension funds, said Mr. Eisenberg, declining to name them.
Mr. Eisenberg expects the 401(k) plan would be divided similarly to the DB plans, based on individual assets.
The defined contribution plan, known as the Timken Co. Savings and Investment Pension Plan, had $1.3 billion in assets, including 25% in company stock, as of Dec. 31, according to its 11-K filing. It is the company's third-largest holder with 6.4% of the shares.
The 401(k) plan's managers are Vanguard, which provides target-date funds; J.P. Morgan, which provides three funds; Capital Research and Management, which provides two American mutual funds; and Morgan Stanley (MS), Nuveen and State Street Global Advisors, which provide one fund each.
Timken announced Sept. 5 plans to split up its businesses into the two companies, embracing a proposal filed jointly by CalSTRS and Relational Investors that the company vigorously had opposed but shareholders on May 7 voted 53% in the majority to support. Following the vote, company's board formed a committee to examine the non-binding proposal. The board concluded the split “was the best course of action for shareholders” to improve shareholder value, Mr. Timken said in the conference call. The company expects the separation to be completed within 12 months.