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Markets

‘$20 billion club’ sees funding ratio inch up in 2018, Russell report notes

The funding ratio of 20 U.S. publicly listed corporations with more than $20 billion in global pension fund liabilities improved to an aggregate 85.3% at the end of 2018, up from 84.4% at the start of the year, according to a report from Russell Investments.

While that aggregate funding ratio did exhibit improvement for the year ended Dec. 31, it was not nearly as dramatic as the one those corporations experienced in 2017, in which the aggregate funding ratio increased more than five percentage points from 79% at the end of 2016.

The report cited a global equity market that lost 13% in value in the fourth quarter of 2018 as the primary driver of the smaller gain. What improvement there was, the report said, came as a result of higher discount rates and strong market returns in the first three quarters of the year.

Contributions among the 20 pension funds totaled $28.1 billion in 2018, about $6.5 billion more than the expected amount the companies had disclosed at the beginning of the year. While smaller than the $37.5 billion the companies contributed in 2017, it was still the third-highest total in recent history, Russell said, eclipsed only by the prior year and 2012, which saw the $20 billion club contribute a total of $30.7 billion to their plans.

General Electric Co., Boston, made the largest individual contribution in 2018, contributing $6.8 billion, followed by Lockheed Martin Co., Bethesda, Md., which contributed $5 billion. Other notably large contributions in 2018 included FedEx Co., Memphis, Tenn., contributing $2.6 billion; Raytheon Co., Waltham, Mass., at $2.1 billion; and General Motors Co., Detroit, at $1.7 billion.

The report said contributions are expected to plummet in 2019, since the opportunistic and strategic contributions made in 2017 and 2018 means minimum funding requirements are expected to be considerably less. Also, companies were motivated by the passage of the Tax Cuts and Jobs Act of 2017 to bundle several years' worth of minimum required contributions into a single year in order to deduct those contributions at the higher corporate tax rate of 35% by the tax deadline of Sept. 15, 2018. Now that the window of opportunity has closed, the report said "sponsors have less appetite for funding their plans in the near future."

Total assets among the $20 billion club were $759.5 billion as of Dec. 31, down 7.3% from a year earlier, and liabilities totaled $896.6 billion, down from $975.1 billion a year earlier.