Thanks to incentives from tax law changes and rising government fees, corporate pensions are seeing a windfall of new cash.
S&P 500 companies with U.S. pensions contributed about $63 billion to those plans in 2017, the highest level since 2003, according to a July report from Goldman Sachs Asset Management. Those companies could add another $60 billion this year, Mike Moran, the firm’s pension strategist, said in the report.
That’s a welcome sign for corporate pensions which have been facing years of low interest rates that can depress investment returns. Companies that put more money in pension plans before mid-September this year can generally get a tax deduction for those contributions under the older and higher tax rate. Companies are getting extra incentive from a rise in the fees they must pay on underfunded plans to the Pension Benefit Guaranty Corp., the government entity that backs pension plans.
“The economics of making a voluntary contribution have become more attractive given the change in tax law and rising PBGC premiums,” Moran wrote in the report. “Increased contribution activity has created a domino effect as this has been a catalyst for some sponsors to consider additional actions with their plans.”
The inflows may be modest relative to the total size of the S&P 500 companies’ pension obligations.
The 100 largest U.S. corporate defined benefit pension sponsors in the United States ended June with a total funding deficit of $118 billion, on about $1.6 trillion in pension benefits obligations, according to data from Milliman.
— Read Investors Helping Life Insurers Shift to Pension Transfer Market: Analyst, on ThinkAdvisor.