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Pension Funds

PepsiCo contributes $750 million to U.S. plans, expects to add another $650 million in Q1

Company also plans $175 million non-discretionary contribution to U.S. and international plans in 2018.

PepsiCo Inc., Purchase, N.Y., has made a $750 million discretionary contribution to its U.S. pension plans so far this year, and the company expects to contribute another $650 million during the first quarter of 2018, the company reported in a 10-K filed Tuesday with the Securities and Exchange Commission.

The total contributions of $1.4 billion will be invested in fixed-income securities, the 10-K statement said.

In addition, PepsiCo expects to make non-discretionary contributions totaling about $175 million to its U.S. and international pension plans in 2018.

PepsiCo in 2016 purchased a group annuity contract for certain retirees in its qualified defined benefit plans and made discretionary contributions of $452 million "primarily to fund the transfer of the obligation," according to the 10-K. It contributed $164 million to its global plans in 2017.

The company reported that its expected long-term rate of return on U.S. pension plan assets is 7.2% for 2018 vs. 7.5% in 2017.

The fair value of U.S. pension plan assets as of Dec. 31 was $12.58 billion with liabilities of $14.78 billion, for a funding ratio of 85.1%, according to the 10-K. At the end of 2016, the funding ratio was 86.9%.

The discount rate for the U.S. plans was 3.7% in 2017 vs. 4.4% in 2016.

The target allocation for U.S. plan assets for 2018 is 47% fixed income, 29% U.S. equity, 20% international equity and 4% real estate. The target allocation for 2017 was 40% fixed income, 33% U.S. equity, 22% international equity and 5% real estate.

The fair value of international plan assets as of Dec. 31 was $3.46 billion with liabilities of $3.49 billion, for a funding ratio of 99.1%. At the end of 2016, the funding ratio was 92.6%.

The discount rate for the international plans was 3% last year vs. 3.1% in 2016.