Boeing Boosts Pension Fund by $3.5 Billion

Move is expected to eliminate mandatory pension funding through 2021.

Airplane manufacturer Boeing said in its Q2 earnings report that it will make a discretionary contribution of $3.5 billion of its common shares to its pension fund in Q3 of this year.

“Over the past several years, we have taken meaningful actions to retire risk and reduce cyclicality, and today’s actions are another step forward,” said Greg Smith, Boeing’s CFO, in an SEC filing.

The contribution is in addition to the $500 million pension contribution originally planned for 2017. The company said it expects the contribution will nearly eliminate all future mandatory pension funding through 2021, based on existing assumptions for asset returns and discount rates. The company said it expects approximately $700 million cash tax savings from the accelerated pension funding in 2017.

As of the end of the quarter, Boeing Capital’s net portfolio balance was $3.9 billion, and total pension expense for Q2 was $100 million, down from $463 million in the same period of the prior year.

The decision by Boeing to make a large voluntary contribution to its pension fund continues a recent trend, as many companies seek to minimize rising Pension Benefit Guaranty Corporation (PBGC) premiums. FedEx, Verizon, Delta Air Lines and DuPont all executed borrow-to-fund transactions in the first half of 2017.

According to Goldman Sachs Asset Management (GSAM), 2016 was the strongest year for contributions to defined benefit pension plans since 2013, despite the fact that many companies have little or no mandatory contribution requirement. It also expects that trend to continue this year, as GSAM forecasts a 10% rise in total contributions in 2017.

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