Another year has gone by where the pension funded status has been held hostage to low interest rates. Many corporations are hoping that 2018 will be the year that interest rates at the long-end of the yield curve move higher to move the needle on the funded ratio. However, given the Federal Reserve Bank’s plan to slowly increase rates and given the relatively low level of inflation expectations, many plans are not waiting for higher interest rates to achieve a higher funding status.
In 2017, several large plans announced debt issuance to increase pension funding, including DuPont, Delta Airlines, and FedEx. Most recently, General Electric Co. announced plans to borrow $6 billion and fund its plan through 2020. Most of these corporations cited three reasons to accelerate funding activity: low interest rates making funding through borrowing economically feasible, the reduction in the corporate tax rate under the new tax plan (causing pension funding contributions to be pushed into 2017), and the approaching expiration of pension funding relief.