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  #641  
Old 02-06-2018, 10:57 AM
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UNITED KINGDOM
CARILLION

https://www.theguardian.com/business...cuments-reveal

Quote:
Carillion ignored warnings about pensions, documents reveal
MPs will question former directors of collapsed construction firm over its allocation of funds
Spoiler:
Pensions advisers repeatedly warned that Carillion was prioritising shareholder dividends over the funding of its pension scheme years before the government contractor’s collapse, according to documents released by the work and pensions committee.

The committee, whose members will question former Carillion directors at a hearing on Tuesday, released new evidence hours after the number of confirmed job losses at Carillion hit 829, with uncertainty persisting over a further 17,500.

The MPs published documents that they said indicated “long-term indifference” by former directors towards the company’s pension obligations, leading to “chronic underfunding” of a scheme relied on by 27,000 members.


Carillion's ex-bosses face MPs: questions they could answer
Read more
The reports, written by a company advising Carillion’s pension trustees, contain multiple warnings that its plan to plug its deficit stretched over too many years and that the firm diverted money to dividends and debt interest rather than into its retirement schemes.

Labour MP Frank Field, who chairs the work and pensions select committee, said: “Clear warning signs were evident several years ago in the assessments of the company’s commitment to its pension schemes. Yet as late as 2015, [former finance director] Richard Adam, one of the directors appearing before us tomorrow, gave a farcically optimistic report to the pension trustees.”

Q&A
What went wrong for Carillion?

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The committee published a series of documents written by Gazelle Pension Advisory Services, which was advising trustees of a Carillion pension scheme estimated to have a 990m deficit.

A report produced by Gazelle for the trustees in 2012 warns that “historically, Carillion has subordinated the pension schemes to other demands on cashflow, in particular repaying acquisition debt, a progressive dividend policy and equity payments into PPP [public-private partnership] projects”.

The following year, Gazelle flagged up a “relative disparity” between the assessment of the company’s health it was giving to City shareholders and what it was telling pensioners. It said this meant that an increase in pension payments was spread over too many years, leaving retirees bearing “a disproportionate share of risk in the business”.

Q&A
What government contracts did Carillion hold?

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Guardian Today: the headlines, the analysis, the debate - sent direct to you
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In an April 2016 report for the trustees of one of Carillion’s 13 pension schemes, Gazelle highlighted that City speculators were betting that the company was in trouble by short-selling their shares.

A final report in May 2017 warned that Carillion’s debts had reached a level that meant it could not “counter material financial shocks or disappointments” and pointed out that its pension deficit was now equivalent to the company’s entire stock market value.

Gazelle advised that only if Carillion “cuts the dividends or produces an alternative plan to reduce debt will the [pension] sponsor constraints be eased”.

Former Carillion directors are expected to face lengthy questioning at evidence sessions on Tuesday, at the beginning of a joint inquiry by the work and pensions select committee and the business, energy and industrial strategy committee, chaired by Labour’s Rachel Reeves.


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  #642  
Old 02-06-2018, 05:38 PM
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LL BEAN

https://bangordailynews.com/2018/02/...-pension-plan/

Quote:
LL Bean starts employee buyouts, ends pension plan

Spoiler:
L.L. Bean, Maine’s fifth-largest employer, has started an employee buyout plan and other belt-tightening measures after a couple years of flat sales.

The measures, announced last February, started Jan. 1, with the aim of reducing its workforce by 500 full-time people, or 10 percent of its 5,000 employees, said L.L. Bean spokeswoman Carolyn Beem. Of L.L. Bean’s total employees, 4,000 are in Maine working in manufacturing, call centers, stores and administrative offices.

“The program is open through the end of February this year to any eligible employee for a voluntary buyout,” she said. That means 900 full-time workers who have been at the company at least 15 years and are 55 years or older have the option to take the buyout, and she expects 500 to do so.

She would not comment on how many people have taken the deal so far, nor how many the company expects will do so. The company has not announced any layoffs, she said. Employees who take the buyout will get a stipend for medical premiums and some pension benefits.

At the same time, the company stopped contributing to its pension plan. That follows a national trend of companies getting rid of pension plans and offering other benefits, according to The Associated Press.

L.L. Bean is boosting company contributions to 401(k) plans from 4 percent to as much as 8 percent of annual income, allowing more flex-time and leave for parental or elder care, Beem said.


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  #643  
Old 02-08-2018, 09:13 PM
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GENERAL ELECTRIC

https://www.bloomberg.com/news/artic...-is-overlooked

Quote:
GE’s $31 Billion Problem
By Katherine Chiglinsky , Brandon Kochkodin , and Rick Clough
February 7, 2018, 7:00 AM EST
Industrial giant’s pension hole is worst for S&P 500 companies
A misstep could overburden divisions with unfunded obligation
Spoiler:
John Flannery hardly needs any more headaches.


But at a time when General Electric Co. is facing what amounts to an existential crisis, a $31 billion deficit in its pension plan may complicate any turnaround that involves a breakup of the 126-year-old icon of American capitalism.

Divvying up the obligations won’t be easy. After all, GE owes benefits to at least 619,000 people. And retirees aren’t the only ones at risk. Ideally, breaking up a conglomerate as sprawling as GE would unlock value for shareholders, who have seen their stock fall 40 percent since the CEO took the reins from Jeffrey Immelt in August. Stronger divisions wouldn’t be dragged down by weaker ones, and each business would stand on its own financially.

Yet GE’s pension deficit has gotten so big, a misstep could risk leaving the separate units with commitments they ultimately can’t afford to pay.

“It can be difficult and tricky, especially when you’re substantially underfunded like GE,” said Georgeann Peters, a partner at BakerHostetler. “If it were a well-funded plan, no one would have too many qualms about it. Being materially underfunded and being such a material potential liability, I think it will be a major factor in any restructuring.”

In an emailed statement to Bloomberg, GE said that “in the evaluation of any alternative, we always consider the synergies and dis-synergies, and we only pursue things that generate meaningful value for our shareholders.”


Flannery, who has cut costs and pledged to sell assets, renewed talk of a breakup among analysts after GE disclosed a $6.2 billion charge tied to an old portfolio of long-term-care insurance. The setback, which has drawn scrutiny from regulators, was the latest for a company that’s struggled with flagging demand and suffered one of its biggest annual losses in recent memory.

At the time, the CEO said all options were on the table and emphasized an earlier plan to focus GE on jet engines, power-generation equipment and health-care machines. Flannery said he would update investors in the spring.

Scant Mention
Although Flannery made scant mention of the underfunded plan during last month’s conference call, GE said in November it planned to borrow $6 billion to help plug its pension hole, the biggest among major U.S. companies. Like many others across corporate America, GE’s pension returns have been pressured by low interest rates that prevailed in the aftermath of the financial crisis.

To make matters worse, the liabilities swelled under Immelt as GE spent more than $45 billion in recent years on buybacks to win over Wall Street.

Of course, in its current form, GE can kick the can down the road because it has decades before some liabilities come due. What ultimately happens to the company’s structure is anyone’s guess. But most lawyers and actuaries agree that if Flannery does pursue a breakup, it might not be as simple as separating the pensions and dividing obligations across its business lines, particularly as GE has undergone a number of internal reorganizations over the years.

For instance, GE’s health-care division employed 54,000 workers at the end of 2016. While that’s almost as many as its power unit, the health group generated a third less revenue. The renewable energy division had just 2,000 more employees than the transportation unit, but almost double the sales. Then there’s the almost 300,000 retirees who currently receive defined pension benefits, as well as the 227,000 ex-GE employees with vested plans. And of course, not every current employee has a pension.

‘Bifurcated Fundamentally’
“That’s the challenge and hurdle to all of this -- the leverage and liabilities they have on this balance sheet make it hard to separate businesses that are pretty bifurcated fundamentally,” said Steve Tusa, an analyst with JPMorgan Chase & Co. The size of GE’s pension deficit is “material, it’s meaningful.”


General Motors Co. serves as a cautionary tale. Back in 1999, the automaker spun off Delphi Corp., its auto-parts arm, along with its pension. When Delphi went bankrupt in 2005, GM was forced to take back some liabilities. But it, too, went bust during the financial crisis, leaving the underfunded plans for 70,000 Delphi workers and retirees in the hands of the Pension Benefit Guaranty Corp., a government agency responsible for backstopping troubled plans.

Because of the size of Delphi’s pension deficit, which exceeded $6 billion, and a legal limit on how much the PBGC could cover, some retirees were left with less than what they were promised.


That’s not to suggest GE retirees share the same fate. The PBGC, which has legal authority to terminate private pension plans and recoup assets, has historically focused on companies closer to insolvency. While Moody’s Investors Service downgraded GE one level to A2, the company’s credit rating is still five levels above junk. GE also has cash reserves of $82 billion, which it could use to plug the pension shortfall if it wanted to.

Closer Look
“If a company is spinning off a financially sound unit with a proportionate share of the pension liabilities, it makes it a lot easier,” said Donald Carleen, a lawyer at Fried Frank. “If an over-weighted portion of the pension liabilities will end up with a business unit that is weaker financially, the PBGC will want to take a closer look.”

More often, the agency works to ensure pension benefits are protected when a company decides to restructure, says Sanford Rich, the PBGC’s former chief of negotiations and restructuring, a job Karen Morris took over in 2016.

Under its early warning program, the agency can usually get companies to the negotiating table by dangling its power to terminate any underfunded plans. (Some have dubbed it the “nuclear option,” which the PBGC has never used.)

Both Alcoa, which spun off its aluminum-parts business in 2016, and Sears Holdings Corp., the embattled retailer, forged deals with the PBGC to shore up their pension plans. A PBGC spokesman said the agency hasn’t contacted GE about its situation.

“They want to make sure the pension liabilities are housed in an entity that can afford them,” said Laura Rosenberg, senior vice president of Fiduciary Counselors Inc., who previously worked at the PBGC.

For GE, any agreement with the agency could leave Flannery with less wiggle room as he tries to revive the industrial behemoth’s fortunes, not to mention less money to put toward shareholder rewards.

“Their plan is big enough that this is certainly a major issue for them,” said John Lowell, a partner and actuary at October Three Consulting. “It’s legally more difficult to do it if they’re underfunded.”
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  #644  
Old 02-08-2018, 09:44 PM
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http://www.cleveland.com/nation/inde...ax_saving.html

Quote:
Companies are using tax savings to fund pensions. Whether this helps workers is debatable

Spoiler:
WASHINGTON -- Tax-overhaul proponents and Republican politicians cheered the news when United Parcel Service, Federal Express and Medina-based RPM International announced in recent weeks how they'd save from their new corporate tax cuts.

The companies would not only invest in expansion. They'd also put hundreds of millions of dollars or more into their pension plans -- $5 billion for UPS, $500 million for Pfizer and $600 million for 3M. This was proof positive that the tax legislation, derided by Democrats as disproportionately helping corporate executives and shareholders, was actually going to heavily benefit workers and retirees. Or so the impression went.

This is not a knock on those pension announcements, which were carefully worded and in some cases created a perception that might not match reality. Regardless, it is usually better to put money in than not to.

But for the overwhelming majority of workers in pension plans, this won't make a direct difference, say a number of pension and financial experts.

Rather, by using tax cuts to shore up their obligations, companies can save money later by spending it now. And by shoring up their pension shortfalls -- in many cases, a shortfall only on paper anyway -- some companies will be better able to offload their pensions as they transition to 401(k) accounts and shift more obligations to workers to save.


"I don't see it as anything but tax gamesmanship," said Norman Stein, a law professor at Drexel University and an expert on pension law. "Very little of this is done for the benefit of employees."

Companies announcing their pension contributions don't see it this way. Frank Sullivan, chairman and CEO of Medina-based RPM International, said by putting $50 million as a result of the tax package into RPM's pension plan, the company is boosting its commitment to workers.

"It's a reinforcement of the benefit package that we have," Sullivan said.

One of RPM's subsidiaries is Tremco, a sealant and coatings company based in Beachwood, and U.S. Sen. Rob Portman, a Republican who championed the tax package, recently visited it and cited its use of tax savings for both growth and employee well-being.

View image on TwitterView image on TwitterView image on TwitterView image on Twitter

Rob Portman

@senrobportman
Tremco is another great example of how #taxreform benefits businesses small and large—and American workers. More money in the pockets of those who earned it.

1:55 PM - Jan 12, 2018
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"Tremco is upgrading their equipment, hiring new workers, and reinvesting in their employees through increased contributions to employee retirement plans," Portman said after visiting the company in January. "I'm pleased that we continue to see these kinds of positive responses from Ohio businesses as a direct result of this tax reform law, and I believe this is only the beginning."


But generally speaking, there has been misinformation and false hope that these pension payments are primarily all about employees. It's not that simple. We'll explain.

What were the announcements?

There is no complete list of companies bolstering their pension plans as a result of savings from the Tax Cuts and Jobs Act, passed by Congress and signed by President Donald Trump in December. But the White House, specialty media that cover pension news and groups such as Americans for Tax Reform try to keep as close a track as they can. And some companies announced the news with reports to shareholders or with press releases.

The companies include Kentucky-based Brown-Forman, maker of Jack Daniels whiskey, UPS, Federal Express and Pfizer.


Dave Joyce

@RepDaveJoyce
More benefits from the #TaxCutsandJobsAct! @UPS announces $12 billion investment to expand the company's Smart Logistics Network and increase pension funding! https://pressroom.ups.com/pressroom/...7489742206-220

11:43 AM - Feb 1, 2018

UPS Boosts Investments By $12 Billion On Favorable Tax Law Impact
UPS today announced more than $12 billion in investments to expand the company’s Smart Logistics Network, significantly increase pension funding, and position the company to further enhance shareow...

pressroom.ups.com
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What did the companies say?

They said they were adding money to their pension plans, and they linked their actions to the tax-overhaul package.

UPS said its $5 billion contribution to three UPS-sponsored pension plans "represents about $13,000 per participant. The voluntary contribution raised the funding level to above 90-percent, securing retirement benefits on behalf of union-represented and union-free employees eligible for UPS-funded pensions."


Pfizer used its most recent earnings report to announce its plans to make a $500 million payment to its pension plan, which a number of media reports and the White House linked to the tax overhaul. Like the UPS announcement, this was part of a broader declaration of a number of investments the company plans or has already made, including $5 million in Pfizer capital projects in the United States, bonuses to all non-executive employees and a $200 million charitable contribution to the Pfizer Foundation.

As impressive as the pension contribution sounds, Joan Campion, a Pfizer spokeswoman, told cleveland.com that the company had contributed $1 billion to the pension in each of the last three years, well before the tax package. Also, the company had frozen the pension plan effective Jan. 1, and closed it to new entrants in 2011.

What did the tax legislation even have to do with pensions?

The tax package had several benefits for companies, though not directly related to pensions. It reduced the statutory corporate tax rate from 35 percent to 21 percent. It removed high-tax provisions that had prompted many companies to keep their overseas profits abroad -- parking them in foreign banks or foreign investments -- rather than sending the money to their United States headquarters for use here. And it let companies write off the cost of new equipment as an immediate expense rather than drawing it out over years.


Separately and together, these provisions meant companies are about to save a lot of money. So what to do with the cash?

The announcements varied, but they included capital expansion projects, employee raises and bonuses, extra contributions to workers' 401(k) accounts and large deposits to pension plans.

The tax legislation "frees up money that we can invest in the business," said Phil Lynch, a spokesman for Brown-Forman, whose pension plan is not offered to new employees. But new employees get a richer 401(k) match, he said.

The company has previously put money into its pension but not at 100 percent funding, Lynch said. The tax bill will change that.

The tax provisions took effect this year. Didn't some companies announce they'd make those pension payments in late 2017?

Some did. UPS is one. But the tax bill guided their thinking.

By making the contribution in 2017, UPS cut its 2017 tax bill -- when the corporate tax rate was 35 percent not 21 percent. As a result of the tax legislation, the expense was worth more by taking it at the end of 2017.

"This is about a prudent use of cash" to increase pension plan funding, and it was "more tax-efficient than if we had waited to make the contributions later," said Steve Gaut, a UPS spokesman.


A quarterly financial report suggests that was 3M's motivation for its late 2017 timing as well.

Other companies decided to wait to top up their pension plans until 2018, when they might have more free cash as a result of the lower tax rate. Their timing depended on what else they had in mind for their cash, their taxes and their investments.

What do you mean by "top up" their pensions?

A pension is a promise to pay a certain amount to workers when they retire. Federal law requires pension plans to set aside money for those future obligations. But they need not put in $1 right away for every $1 a retiree will get eventually, because many workers won't retire for years and the pension plan will make investments that grow over time to provide the full amount. What is important is that the amount the company puts in, and the investment growth, covers that $1 when the employee retires and draws it.

You have probably seen company statements that say a pension plan is 83 percent funded, or 90 percent funded, or 100 percent funded. If you think of that $1 just mentioned, that would mean that if everyone covered by the pension plan were to draw all the money right now, there would only be 83 cents or 90 cents or, in some cases, that full $1.


Topping up means a company puts in more money to bring that percentage higher. It makes the pension plan fully funded or closer to fully funded than it had been. UPS, for example, said its new contributions will put its funding levels above 90 percent, which is significantly higher than before.

Speaking of which: One of the company's big pension plans announced last year that more than 70,000 workers will accrue no new benefits starting in 2023, switching to a 401(k) benefit instead. So what's the big deal with these top-up contributions if the company is freezing this particular pension?

UPS said the infusion will assure that those workers who earned the pensions will get them as promised.

That's good, isn't it -- and shouldn't I sleep easier knowing my pension is better funded?

It is good. But for the overwhelming majority of company pension plans, this is an accounting and cash-flow strategy. Don't forget that the funding figure is an aggregate for every member as if he or she retired right now. If you are 40 years old, your pension plan has many years before it needs that money to pay you.

Now hypothetically, if you are smart with your money, plan for your future and have a little savings at the end of every month, you are probably putting away a little on your own toward future needs. But that doesn't mean that if you are 40 right now, you should sock away every dollar you'll expect to need at age 66 or 67. You'll probably have some interest and investment income to help you reach your planned total, and you might have better uses for some of your cash -- maybe a house or other investments -- right now.


It's the same thing with pension plans. Companies either put in more money now to be "fully" funded or spend their money on other priorities now -- and use accepted investment and interest strategies -- with the knowledge that they must have enough to cover your pension when the time comes.

It is entirely about how, and when, they choose to use their money.

Why, then, do we hear that pensions are seriously underfunded and in trouble? Won't this help with that problem?

You hear this for two reasons. One is that some companies do, in fact, have seriously underfunded pensions. But most don't. Even the Pension Benefit Guaranty Corp., or PBGC, a government agency that insures pension plans so beneficiaries can be assured of getting their money, says this.

The other reason is that a different kind of pension plans, formed by unions to represent workers in a band of industries, are in serious trouble. These are called multi-employer pension plans, formed to serve truck drivers, ironworkers and so on, and their members face threats to their retirement incomes for a number of reasons. Some are related to bad pension investment decisions by outside financial advisers, and some are because of shrinking memberships that therefore can't produce the funding needed for current and future retirees.


But multi-employer, union plans are not the ones topping up, getting fully funded or seeing the fruits of the tax overhaul right now. They are not the focus of the latest tax-cut announcements. And without taking a detour, you should know that the PBGC, which guarantees pension payments, has its own set of books for the troubled multi-employer plans -- a set that projects even deeper trouble but, again, only for those plans and therefore only for that segregated portion of the PBGC's bailout fund.

As for the single-employer plans -- the pensions mentioned here for 3M, Pfizer, RPM International and so on -- they not only are in good shape, but if that were to change, the PBGC would be able to handle a takeover. In fact, a current 65-year-old retiree whose pension went bust in one of these single-employer plans would still be guaranteed payments to a maximum of $65,054 a year.

In other words, the overwhelming majority of these pensioners would be fine.

Are you saying these figures we hear - that a pension is 80 percent funded or 85 percent funded and so on -- are meaningless?

A number of pension authorities we interviewed said, essentially, yes.

"That's not a meaningful figure," J.B. Silvers, a finance professor at Case Western Reserve University, said when we mentioned 80 percent and 90 percent pension funding.


Willis Towers Watson, a pension advisory company, analyzed data from 389 Fortune 1,000 companies in 2017 and found their average funding level was 83 percent. They was not troubling, the firm said.

As the American Academy of Actuaries noted in a 2012 report, the "myth" that an 80 percent funded plan marks the cutoff for financial soundness is just that -- a myth.

"Provided the plan sponsor has the financial means and the commitment to make the necessary contributions, a particular funded ratio does not necessarily represent a significant problem," the academy's issue brief said.

Why, then, would a company want to use tax savings to fully fund, or at least better fund, a pension plan?

The money will come due sooner or later. For some companies, the tax legislation will free up enough cash to do it now, so why not?

But there's more to it.

Like what?

Putting in more money will save the company on its PBGC premiums. The PBGC's single-employer program is funded through employer premiums of $74 per worker or member, and those premiums have been rising steadily. But on top of that, companies must pay an extra $38 for every $1,000 of unfunded benefits for each employee, capped at $523 per beneficiary, and these too have gone up.


That can amount to "many millions of dollars a year" in premiums for an employer, said Alan Glickstein, a senior retirement consultant with Willis Towers Watson. By avoiding those high premiums, a company can preserve its capital for other things.

Aren't companies ditching their pensions anyway?

Some are. But the funding ratios actually matter much more when that happens.

Companies can get out of their pensions by turning all the obligations over to an insurance company or offering a lump sum to workers and retirees and closing the books. They essentially buy an annuity that covers the payments. Then the company pension is all done.

This is called de-risking.

Insurers won't help employers de-risk unless the pension plan is fully funded. By providing companies with more after-tax income, the new tax law will help companies top off their pensions if they want to de-risk.

Several financial experts said that by using tax savings to fully fund pensions, companies will be in even better positions to ditch the last vestiges of their pensions if and when they want.

This sounds cynical. Why not accept that companies are using the tax changes to shore up their pension plans for the benefit of workers?


That is certainly what Sullivan, of RPM, said his company is doing, and what UPS said as well. A fully or better-funded pension gives workers peace of mind that their retirement income will be secure, these and other companies said.

"A healthy organization is always good for the people working for it," said Glickstein.

Silvers, of Case, agreed, but only to a point. "Technically, the more funding you have, the better off you probably are," he said. But assuming the pensions were in good shape already, "are they" -- the employees and future pension beneficiaries -- "really better off?

"Probably not," Silvers said. "It's just a place to park (the company's) money. They might put it in R&D instead."


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Old 02-08-2018, 09:51 PM
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GENERAL MOTORS
http://www.pionline.com/article/2018...te-on-us-plans
Quote:
GM revs up $900 million contribution to non-U.S. pension plans, ups assumed rate on U.S. plans
Spoiler:
General Motors Co., Detroit, increased the U.S. pension plans' long-term expected rate of return on assets to 6.6% from 6.2% in December following an investment policy study, the company disclosed in a 10-K filing on Tuesday.

It is the first increase in the plans' expected rate of return since 2014. The plan's expected rate of return was 6.2% for the year ended Dec. 31, 6.3% for 2016, 6.4% for 2015, 6.5% for 2014 and 5.8% for 2013.

GM also disclosed in the filing that it plans to contribute $900 million to its non-U.S. pension plans in 2018. The contribution to the non-U.S. plans follows total contributions to the plans in 2017 of $1.153 billion. GM contributed $1 billion and $1.1 billion to the plans in 2016 and 2015, respectively. In 2018, GM also plans to contribute $70 million to non-qualified U.S. pension plans. Total contributions to U.S. plans were $77 million in 2017 and $2.1 billion in 2016.

GM said that based on its assumptions it does not anticipate having any required contributions to U.S. plans over the next five years and plans on making a total of $1.2 billion over the same time period to its Canadian and U.K. plans.

As of Dec. 31, U.S. pension plan assets totaled $62.64 billion, while projected benefit obligations totaled $68.45 billion, for a funding ratio of 91.5%. Non-U.S. pension plan assets as of that same date totaled $14.5 billion, compared to projected benefit obligations of $22.79 billion, for a funding ratio of 63.6%.

The U.S. pension plan discount rate for 2017 was 3.53%, down from 3.92% the year before, while the non-U.S. pension plan discount rate for 2017 was 2.66%, down from 2.88% the previous year.

The target allocation for the U.S. plans is 61% fixed income, 24% other and 15% equities, and the targets for the non-U.S. plans are 56% fixed income, 26% other and 18% equities.

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Old 02-14-2018, 03:25 PM
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https://www.reuters.com/article/us-u...-idUSKCN1FY0L6

Quote:
Rising U.S. bond yields offer relief to corporate America's pension plans
Spoiler:
NEW YORK (Reuters) - The swift rise in U.S. bond yields in February may be whipsawing some stock market portfolios but it may bring relief to corporate America’s largest pension plans.

Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York, U.S., February 13, 2018. REUTERS/Lucas Jackson
For pension funds, rising interest rates can generate more investment income to cover their obligations to pay pensioners.

The prolonged low-rate, low-volatility environment since the 2008 financial crisis posed a challenge for pension fund managers. Not only were returns on bonds low, but the market value of their liabilities was rising, reducing the so-called funding ratio of pension funds.

Rising bond yields can be good for pension plans because it can lower the required annual cash infusions while still meeting their liabilities, said Michael Schlachter, a partner at pension fund advisor Mercer Investment Consulting in Boulder, Colorado.

The estimated aggregate funding status of pension plans sponsored by S&P 1500 index companies increased by 3 percent in January to 87 percent at the end of the month, as a result of both an increase in discount rates on liabilities, tied to bond yields, and a rise in equity markets to a new record, according to Mercer.

Last week’s volatile stock markets worldwide were accompanied by surging bond yields though which worked in favor of pension funds.

Across America’s largest 1,000 companies, 491 offer defined-benefit plans which pay a fixed pension, and these plans have most of their assets in fixed income, followed by equities, then other assets like private equity and cash, according to Willis Towers Watson.

As annual reports are published throughout February, the average funded status of the plans, or the gap between what corporations owe for their pension plans versus what they have set aside for the obligation, will likely show the first year-over-year increase in four years.

“Continued rises in interest rates, equity values, and contributions could further augment funded ratios in 2018,” said Michael Moran, chief pension strategist at Goldman Sachs Asset Management in New York.

HELPING PENSIONERS
Rising bond yields will free up companies to contribute less to pension plans, which are helped most by the rise in yields of U.S. Treasury debt with a long maturity. Last year’s “flattening” in the yield curve, in which long-dated yields fell faster than short-term yields, had hurt some pension plans.

Last week, U.S. defense company Lockheed Martin Corporation reported that its pension fund for employees nearly tripled its return on assets in 2017 from the year prior, but the plan’s funded status decreased over that same period from 69.7 percent to 68 percent. Also last week, $62.7 billion snack conglomerate Mondelez International reported that its pension plan, which was overfunded in 2016 at 100.4 percent, was in 2017 down to 97.4 percent. Greif Inc, an industrial packaging firm, said the funded status for its U.S. pensions declined from 70.7 percent to 69.3 percent.

All told, it’s not just the swift rise in bond yields that is projected to help corporate pension funds.

Spurred by President Donald Trump’s tax overhaul, corporate pension plan sponsors across the United States upped their contributions hoping to take advantage of the old 35 percent tax rate, which is deductible from a tax bill, before they are forced to use the 21 percent rate in September.

United Parcel Service increased its pension contribution by $7.3 billion in 2017 over an expected $2.3 billion at the start of the year. General Motors, which manages the largest corporate pension plan in the United States contributed $3 billion last year.

In 2017, Boeing added $3.5 billion, Delta added $3.2 billion, and Verizon added $3.4 billion in addition to the $600 million it had already pledged. Lockheed Martin plans to add $5 billion in 2018.
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UNITED KINGDOM
CARILLION

http://www.businessinsider.com/r-bri...wmakers-2018-2

Quote:
Britain's pensions regulator ignored trustee requests on Carillion: lawmakers

Spoiler:
LONDON (Reuters) - Britain's pensions regulator twice ignored requests from trustees of collapsed outsourcing firm Carillion to force the company to plug its pension deficit, lawmakers said on Tuesday.
The Pensions Regulator has come under fire for taking insufficient steps to protect pension scheme members of troubled companies, following the collapse of department store chain BHS in 2016.

Carillion collapsed on Jan. 15, with only 29 million pounds ($41 million) of cash left. It had pension liabilities of around 2.5 billion pounds, two parliamentary committees examining Carillion's collapse said.

The Pensions Regulator did not use any formal powers regarding Carillion while the company was solvent even though trustees urged it to do so in 2010 and then again in 2013, the lawmakers said in a statement.


The regulator opened a formal investigation into Carillion on Jan. 18, three days after its collapse.

"With characteristic alacrity, the Pensions Regulator started its arduous process of chasing money down from Carillion a few days after it was formally announced there was no money left," said Frank Field, chair of parliament's Work and Pensions Committee.

The Pensions Regulator said in a statement that while it did not use its formal powers before Carillion's collapse, its threat to use them in 2013 had a positive impact.

"Our intervention resulted in a significant increase in the amount of money the company was prepared to pay into the scheme," it said.

"We believed this was reasonable based upon our understanding of the company's trading strength, as set out in its audited accounts."

Carillion's trustees said in a letter to the regulator in 2010, published by lawmakers, that additional deficit payments offered by the company were "not acceptable". In 2013, in another letter, they said the scheme was "taking a disproportionate amount of risk".

Carillion's pension scheme is in the process of transferring to the Pension Protection Fund, a lifeboat for pension funds of failed companies, which will likely mean a loss of benefits for the majority of the 27,500 scheme members.

(Reporting by Carolyn Cohn; Editing by Susan Fenton)


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