Boeing Co. expects its pension fund investments to reach their 8% assumed expected rate of return for the year, James Bell, corporate president and CFO, said in a company webcast Wednesday.
But interest rates are below expectations of Boeing's 5.8% discount rate for valuing pension liabilities, he said.
“To date, returns on our pension assets are tracking in line with our assumed 8% return for the year, although discount rates have declined below our expectations,” Mr. Bell said.
“The discount rate is driven by current high-quality corporate interest rates, which change every day, and is in the neighborhood of 5.25% today,” Chaz Bickers, Boeing communications director, said. “Even if the discount rate remains low on Dec. 31, we do not expect to have significant pension funding requirements in 2011.”
According to Mercer, as of Tuesday, the yield of Barclay's Capital Long Credit AA was 5.39%; Merrill Lynch US Corp AA 15 plus year, 5.4%; and Merrill Lynch US Corp AA 10-15 year, 5.1% yield.
Boeing uses a discount rate based on a yield curve of bonds rated Aa or better by Moody's Investors Service, according to the company's 10-K report. A 0.25% reduction in the discount rate would increase Boeing's pension obligations $1.8 billion, the report said.
Pension investment returns for the year so far weren't available from company officials.
Chicago-based Boeing still plans to contribute less than $100 million to it pension funds this year, Mr. Bell said.
The company made small contributions to some of its plans this year, Mr. Bickers said. The amounts weren't available.
In 2009, Boeing contributed almost $1.51 billion to its pension funds, consisting of 29.21 million shares of its stock, valued then at $1.5 billion, and $82 million in cash. At the close of trading Wednesday, the stock was valued at $1.9 billion.
Boeing had $45.8 billion in pension assets and $52.1 billion in pension liabilities as of Dec. 31.