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Pension Funds

Russell: ‘$20 billion club’ sees pension funding ratio improve to 84.4%

The funded status of 20 U.S. publicly listed corporations with more than $20 billion in global pension fund liabilities was an aggregate 84.4% at the end of 2017, up from 79% at the start of the year, said a new report from Russell Investments.

The improved funding ratio was driven primarily by the largest recorded single-year contributions by those companies. The 20 companies contributed a total of $37.5 billion to their plans in 2017. In 2016, the members of Russell's "$20 billion club" consisted of 19 companies that contributed a total of $18.2 billion to their pension funds.

Those contributions helped assets in 2017 increase to $818.5 billion at the end of the year, up 11.7% from the year before, outpacing the continued rise of liabilities for the 20 companies to $975.1 billion at the end of 2017, up 5.8% from the year before.

Russell said in its 2017 report that the contributions — well above those required — were driven primarily by the companies' desire to reduce their variable rate premiums to the Pension Benefit Guaranty Corp., as well as the impending tax reform.

The PBGC's variable rate is based on the unfunded obligations in a defined benefit plan, as opposed to the fixed rate, which is based on the number of participants in the plan. The healthier the funding ratio, the lower the PBGC variable rate premium. In 2017, the rate was $34 per $1,000 of unfunded vested pension benefits; in 2018 it's $38, and in 2019, it's set to go up to $42 per $1,000 of unfunded vested pension benefits.

Looming corporate tax reform, which took shape in December as the Tax Cuts and Jobs Act of 2017, spurred corporations to bundle several years' worth of minimum required contributions into a single year in order to be able to deduct those contributions at the higher corporate tax rate of 35%.

The largest contributions according to the report were made by United Parcel Service Inc., Atlanta, which contributed $7.4 billion to its plans; Verizon Communications Inc., New York, $4.1 billion; and Boeing Co., Chicago, $4 billion.