As higher PBGC premiums make underfunded status more expensive, Mr. Owens expects to see more sponsors take action to increase the funding ratio, including contributing more than the regulatory amounts. “People are being forced to re-evaluate that minimum-funding policy,” he said.
General Motors Co., Detroit, plans to contribute $2 billion to its U.S. hourly defined benefit plans by mid-2016, “which is expected to be financed by debt,” according to the company's 10-K. GM made $95 million in contributions during 2015 to its pension plans, which had $61.1 billion in assets and $71.5 billion in liabilities, for a funding ratio of 85.4% at the end of the year.
Mr. Owens said corporate strategies to increase contributions, including issuing new debt to take advantage of low interest rates, could be more cost effective than paying more to the PBGC.
“With the rising PBGC premiums, if the sponsor just pays the minimum requirement, in effect, it's a tax,” he said.
Only three companies contributed $1 billion or more in 2015, down from eight companies the previous year. Delta contributed $1.22 billion; United Parcel Service Inc., Atlanta, $1.16 billion; and Pfizer Inc., New York, contributed $1 billion in 2015.
Contributions made a difference for American International Group Inc., New York. AIG saw the highest funding ratio increase for the year, with a 10.61 percentage point jump to 81.87%. Plan assets had a negative return of $8 million, but with a 38-basis-point increase in the plan's discount rate to 4.32% and $558 million in contributions, liabilities decreased 8% in 2015 to $5.32 billion, and assets increased 6% to $4.36 billion.
In 2016, the plans in P&I's universe have announced $19.23 billion in expected contributions, a 33.4% increase compared with 2015's expected $14.42 billion.
The two lowest-funded plans on P&I's list each expect to contribute more than $1 billion in 2016.
Delta Air Lines Inc., Atlanta, plans to contribute $1 billion in 2016, including $500 million in discretionary contributions above its minimum-funding requirements. Delta's 45.5% funding ratio kept it at the bottom of P&I's list for the 11th-consecutive year, with $9.37 billion in assets and $20.61 billion in liabilities.
Exxon Mobil Corp., Irving, Texas, expects to contribute $2 billion in 2016. Exxon was the second-worst funded plan on the list, with a funding ratio of 56.1%. It had $10.99 billion in assets and $19.58 billion in liabilities at the end of 2015.
Going forward, AIG will use a different approach to determine pension interest costs, which the company's 10-K says will result in $52 million less in projected expenses for 2016. This new accounting method aligns the timing of the plan's discounted cash flows to the corresponding spot rates on a yield curve derived from the interest rates of investment-grade corporate bonds. n