As we approach the second quarter of 2018, we continue to see activity with defined benefit plans to reduce plan sponsor long-term liability (i.e., de-risking). Many companies have implemented changes to how future benefits accrue, what forms of distributions are available (e.g., adding a lump sum) and what entity (e.g., an outside insurance company) is responsible for paying promised benefits. Three primary pressures contribute to these decisions: continued low interest rates, longer participant life expectancies and increased Pension Benefit Guaranty Corporation (PBGC) premiums. We can expect a continuation of plan de-risking in the future.
Another trend we have seen recently is the large number of companies voluntarily contributing amounts above the required contribution to their defined benefit plans. Many of these companies capitalized on the low interest rate environment and issued debt to pay down the funding shortfalls of the plan. History has shown that fully funding a company’s pension plan could be a precursor to a de-risking decision by the company. These decisions could lead to opportunities for discussions with clients to help them understand what may be happening with their pension plans. If the company decides to offer a lump sum option, there may be money-in-motion opportunities. Likewise, if a company decides to transfer risk to an outside insurer it is an opportunity to educate clients and strengthen your relationship.
| Pension De-Risking Activity 2018 | |
| Graphic Packaging | Lump-sum & transfer |
| L3 Technologies | Plan Freeze eff. 1/1/2019 |
| Alcoa | Plan Freeze eff. 1/1/2021 & 3% contribution to DC plan for affected employees |
| Arconic | Plan Freeze eff. 4/1/2018 |
| DuPont | Plan Freeze eff. 11/30/2018 |
| Excess Pension Contributions 2018 | |
| FedEx | $1.5 billion |
| Exelon | $652mm |
| 3M | $500mm |
| Alcoa | $300mm |
| Mondelez | $289mm |
| United Technologies | $100mm |
| Lockheed Martin | $5 billion |
| AbbVie | $750mm |
| Huntington Ingalls | $508mm |
| Motorola | $500mm |
| DTE Energy | $200mm |
| Consolidated Edison | $473mm |
| Graphic Packaging | $75mm |
Sources: SEC Forms 8-K and 10-K filings