Retirement Plans

Alcoa Agrees to Extra Pension Contributions

Under an agreement with regulators, the company will pay $150 million into its two largest pension funds after it splits into two separate entities.
Matthew HellerOctober 13, 2016
Alcoa Agrees to Extra Pension Contributions

Alcoa has agreed to contribute an additional $150 million to its two largest pension funds to help secure the benefits of 83,000 workers after it splits into two separate companies.

The agreement with the Pension Benefit Guaranty Corp. calls for three $50 million payments over 30 months. Alcoa Retirement Plan I and Alcoa Retirement Plan II had $3.7 billion and $3.5 billion in assets, respectively, as of Dec. 31, and represent 91% of Alcoa’s pension obligations.

The split of the company into Alcoa Corp., a producer of bauxite, alumina and aluminum products, and Arconic Inc., a maker of high performance materials and products for industries such as automotive and aerospace, is scheduled to become effective Nov. 1.

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The PBGC noted that once the transaction is complete, Arconic will carry about $9 billion in long-term debt, creating the potential for additional risk to the pension plans.

The additional contributions “will improve the financial status of both plans and help to further secure the pensions of Alcoa’s workers and retirees,” PBGC Director Tom Reeder said in a news release. “We’re always looking to work with plan sponsors to give people better retirement security, and we appreciate that Alcoa shared this priority and was a helpful partner in the process.”

Alcoa has a total of eight pension plans that cover more than 102,000 workers and retirees. According to its most recent 10-K filing, Alcoa’s pension funds had $8.1 billion in assets and $11 billion in liabilities, as of Dec. 31, for a 73.6% funding ratio.

“Companies have been struggling since the financial crisis with ballooning pension obligations,” The Wall Street Journal said. “Low interest rates, which increase the present-day value of future pension obligations, have caused the obligations to surge.”

Alcoa has also been dealing with a downturn in its smelting business due to low aluminum prices. Its shares fell 10% on Tuesday after it reported a lower-than-expected third-quarter profit and lowered its revenue forecast for Arconic.