Retirement Plans

Pension Plan Sponsors Slashed Contributions in 2019

At present, companies generally aren't subject to required contributions and have little incentive to make discretionary ones, Russell Investments ...
David McCannMarch 9, 2020

Large corporate pension plan sponsors in 2019 contributed the fewest dollars to their plans since recession-plagued 2008, according to an analysis by Russell Investments.

Russell began in 2005 to track a group of 20 publicly listed U.S. companies with defined benefit (DB) pension plan liabilities exceeding $20 billion, dubbing it the “$20 billion club.” While several other plans also now have liabilities over that threshold, Russell continues to focus on the original 20 club members in order to facilitate observations and comparisons.

Last year’s plan contributions by the 20 companies totaled $11.9 billion, just a hair greater than the $11.8 billion contributed in 2008, which has been the lowest annual level across the 15 years since the $20 billion club was established.

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The contribution level in 2019 looked particularly stingy when contrasted to the $37.5 billion and $28.1 billion contributed in 2017 and 2018, respectively. Those amounts — much of which was attributable to tax advantages — were the first- and third-highest annual totals in the 15-year period.

With pension funding stabilization still in place, few sponsors have significant required contributions for their U.S. plans, Russell noted. And given exceptionally strong asset returns in 2019, sponsors saw little need to make discretionary contributions, despite historically high Pension Benefit Guaranty Corp. premiums that penalize the sponsors of underfunded plans, the investment firm added.

Russell forecasts that the contribution level will continue to be low this year among $20 billion club members, at $13.9 billion. However, 2020 contributions would be even lower than last year’s level were it not for General Electric’s announced intention to inject $4 billion to $5 billion into its plan.

The total funding deficit for the 20 plan sponsors increased last year to $151 billion, from $137 billion in 2018. Aggregate assets at year-end were $830 billion, while liabilities totaled $981 billion.

The deficit spike was largely a result of lower interest rates that translated to a big hike in future plan obligations.

In addition to GE, $20 billion club members include 3M, AT&T, Boeing, Corteva, Dow, Exxon Mobil, FedEx, Ford Motor, General Motors, Honeywell, IBM, Johnson & Johnson, Lockheed Martin, Northrop Grumman, Pfizer, Raytheon, United Parcel Service, United Technologies, and Verizon Communications.

According to Russell, the pension strategies of those 20 companies are a convenient proxy for the likely upcoming strategies of U.S. pension plan sponsors overall. “Their tendencies … reliably signal forthcoming industry trends,” Russell wrote. “They tend to have the scale and resources to trailblaze their own path, which many other DB sponsors eventually follow.”