U.S. companies set to contribute $15.6 billion to pension funds

U.S. corporations tracked by Pensions & Investments so far in 2016 revealed plans to contribute a total of $15.6 billion to their pension funds, 10-K filings with the Securities and Exchange Commission said.

Of the 31 companies that plan to contribute at least $100 million in 2016 whose 10-K filings are tracked by P&I, four reported the intent to contribute at least $1 billion each.

At this time last year, 51 companies had announced they intended to contribute $17.35 billion to their plans in 2015. Of that, 35 companies were planning to contribute at least $100 million to their U.S. plans, totaling $11.6 billion.

General Motors Co., Detroit, which has the largest U.S. corporate pension plan, will make the largest contribution. In its 10-K filing, the company disclosed plans to put $2 billion into its U.S. hourly pension funds by the middle of the year. General Motors' funding ratio increased 40 basis points to 87.9% from 87.5% in 2014. It will also contribute $947 million to its non-U.S. plans.

Ford Motor Co., Dearborn, Mich., plans to contribute $1.5 billion to its global defined benefit funds in 2016. The funding ratio for Ford's global DB plans improved to 89% at the end of 2015 from 87.8% the previous year.

Ford made the announcement on Jan. 7, the same day it said it would be moving to a mark-to-market accounting system.

United Parcel Service Inc., Atlanta, plans to contribute $1.16 billion to its U.S. defined benefit plans in 2016. The company's funding ratio at the end of 2015, 78.4%, was a 160 basis-point improvement over 76.8% the previous year.

Delta Air Lines Inc., Atlanta, plans to contribute at least $1 billion to its defined benefit plans in 2016. Delta said the contributions will include $500 million above the minimum funding requirements. Delta, which has the worst-funded large corporate pension plan in the nation, did see its funding ratio improve to 45.4% from 42.8% during 2015.

Overall, the funded status of U.S. corporate pension plans is in pretty good shape, said Alan Glickstein, Dallas-based senior retirement consultant at Willis Towers Watson PLC. The company earlier this year estimated the aggregate funding ratio of the largest corporate pension plans was 82% at the end of 2015, unchanged from Dec. 31, 2014.

“Measured for funding purposes, they're pretty well funded,” Mr. Glickstein said. “The average pension plan is pretty close to fully funded. As you probably know, that's because pension plans for funding purposes use an interest rate that reflects to some degree a 25-year (interest rate) average as opposed to a current rate.”

Mr. Glickstein added that while some companies may be well funded enough to have relatively small or non-existent minimum funding requirements, they may still wish to make larger contributions to avoid the impact of skyrocketing premiums charged by the Pension Benefit Guaranty Corp.

“Some plans, even if they feel like the plan is well funded or they feel interest rates might be coming up, (lowering liabilities), they also have a policy to minimize their PBGC premiums,” Mr. Glickstein said.

PBGC premiums consist of a fixed-rate premium based on the number of people in the plan as well as a variable-rate premium based on underfunding. A federal budget deal in October that extended the debt ceiling until March 2017 resulted in both premiums being raised.

Variable rate premiums are rising to $30 per $1,000 of underfunding in 2016, eventually rising to $41 per $1,000 by 2019. As recently as 2013, the variable rate was $9 per $1,000 of underfunding. The fixed-rate premium of $64 per participant in 2016 will rise to $80 per participant in 2019. As recently as 2012, it was $35 per participant.

Fifteen of the 28 plans tracked by P&I saw their funding ratios increase in 2015, while 12 saw their ratios decrease and one remained essentially the same. Not all plans reported solely U.S. numbers and not all would provide U.S. vs. non-U.S. numbers.

Abbott Laboratories, Abbott Park, Ill., which announced it plans to contribute $576 million to its global DB plans in 2016, had the greatest funding ratio increase in 2015, albeit for its global plans, to 86.6% from 80.1%.

A report from Russell Investments that looks at the funded status of 20 public U.S. companies with more than $20 billion in pension liabilities said those companies contributed $13.4 billion to their pension funds in 2015, a drop from previous years, while the funded status remained relatively unchanged. n