Alcoa Inc., Pittsburgh, will contribute an additional $150 million total to its two largest pension funds, under an agreement with the Pension Benefit Guaranty Corp. announced Tuesday.
The agreement, which calls for three $50 million payments over 30 months, was a result of the PBGC's Early Warning Program, which monitors large pension plans and corporate transactions that could jeopardize pension funds.
In September 2015, Alcoa announced it would split the company into two new publicly traded entities: Alcoa Corp., and Arconic Inc., which was projected to add about $9 billion in long-term debt to Arconic.
The company notified PBGC officials in late 2015 and “was a helpful partner in the process,” PBGC Director W. Thomas Reeder Jr. said in a statement. A PBGC official who declined to be identified said the agency worked closely with Alcoa to figure out the eventual corporate capitalization structure, and how the pension plans would be affected by leverage and growth projections. “We could then look at how that changed the funding ratios,” the official said in an interview.
Alcoa Inc. sponsors eight pension plans, with 91% of the obligations in the two largest plans, Alcoa Retirement Plan I and Alcoa Retirement Plan II, which had $3.7 billion and $3.5 billion in assets, respectively, as of Dec. 31, according to its most recent Form 5500s.
Participants in both of the previous plans will be split between new Alcoa and Arconic plans. The Arconic plan, which will have a higher percentage of active workers, is expected to be more underfunded, but also benefit from the growth potential of the new company, the PBGC official said.
According to its most recent 10-K filing, Alcoa's U.S. pension funds had $8.1 billion in assets and $11 billion in liabilities, as of Dec. 31, for a 73.6% funding ratio, and its minimum required contribution for 2016 was $300 million.
Alcoa said in a statement it “has always met its pension obligations to its employees and retirees. When we announced the separation of our company, we proactively contacted the PBGC and have worked together to develop a mutually agreed upon solution for the pension plans of both Arconic and Alcoa Corp.”