U.S. corporations are continuing to lower their expected contributions to their pension plans in 2023 as more and more plans reach full funded status.
The companies behind the 100 largest corporate pension funds plan to contribute a total of up to $12.5 billion in 2023, according to Pensions & Investments' analysis, compared to $16.2 billion contributed in 2022.
The data reflect the companies' expected contributions disclosed in their 10-K filings with the Securities and Exchange Commission.
For S&P 500 companies overall, 28 disclosed expected contributions of at least $100 million this year, down from 33 last year and 50 in 2021.
A major reason behind the expected decline in contributions was the significant increase in funding ratios in 2022 that came as a result of rising discount rates, meaning corporations had no minimum required contributions for their plans.
It has been a happy surprise for many corporations, particularly those with frozen plans that employ liability-driven investing programs, said Brian McDonnell, head of the global pension practice at Cambridge Associates LLC, Boston.
"All along the way (they've) been adding to the liability hedging and reducing growth assets," Mr. McDonnell said. They designed the glidepaths to increase fixed-income allocations every time the plan reached a new funding ratio threshold.
"They designed glidepaths not expecting that it would be a very quick multistandard deviation move in discount rates in a nine-month time frame that led going through multiple glidepath triggers in the course of a calendar year," Mr. McDonnell said.
By reaching those glidepath triggers and becoming fully funded, plans are now fully derisked with the intention of never seeing their funded status fall again.
Mr. McDonnell said this is the first time there has been full funding in an environment in which the majority of plans are no longer accruing benefits, meaning companies might never have to make contributions again.
There are, however, exceptions. Chevron Corp., San Ramon, Calif., reported $7.94 billion in U.S. plan assets as of Dec. 31, and $9.71 billion in projected benefit obligations, for a funding ratio of 81.8%. In its 10-K filing, the oil company said it expected to make $1 billion in contributions to the U.S. plans in 2023 after contributing $1.1 billion to the plans in 2022.
The company did not say in the filing how much of the contribution is required and how much is discretionary. Officials there could not be immediately reached for comment.
Two other companies revealed plans to contribute over $1 billion to their pension plans in 2023.
United Parcel Service Inc., Atlanta, said it plans to contribute $1.18 billion to its U.S. plans. UPS had $42.06 billion in U.S. plan assets as of Dec. 31, and PBO totaling $43.5 billion, for a funding ratio of 96.7%. In 2022, UPS contributed $1.9 billion to its plans. At the time UPS announced its 2022 contribution expectations, spokesman Glenn Zaccara said the firm was making contributions above minimum required levels as part of plans announced in June 2021 to achieve an adjusted gross debt/earnings before interest, taxes, depreciation ratio of about 1.5 times by the end of 2023.
Truist Financial Corp., Charlotte, N.C., has already made discretionary contributions totaling $1.3 billion to its global pension plans since the beginning of 2023. That came even after reporting its Truist Financial Corp. Pension Plan had a funding ratio of 157.2% as of Dec. 31, up from 156.8% a year earlier. Officials at the firm could not be immediately reached for further information.
