Packaging company Sonoco’s board of directors has approved a plan to terminate the Sonoco US Pension Plan for Inactive Participants, effective Sept. 30.
According to SEC filings, the company made $190 million in voluntary pension contributions this year to raise the plan’s funded level to 97%, and expects to top that off to 100% by the end of next year. The company said the termination of the pension plan will not reduce any retirement benefits earned by the approximately 11,000 participants in the inactive plan.
With only limited exceptions, Sonoco had already closed participation in its US defined benefit pension plans to new participants, including the inactive plan, and ceased all additional benefit accruals at the end of 2018. Sonoco instead shifted its employee retirement benefits plans into defined contribution plans.
“However, the company continues to be committed to and responsible for funding the large pension obligations that have accumulated over the years,” said Sonoco in an SEC filing. “Because these funding obligations are affected by the investment return of pension plan assets and the related unpredictability of market conditions, this led the company to approve the termination of the inactive plan.
In a statement, Sonoco General Counsel John Florence said the termination of the plan is better described as a “transition of obligations and related assets” which, once executed, will result in the full funding of the inactive plan’s benefit obligations. He said the company will “take actions” in the coming months to prepare for the transition of the plan’s obligations and assets, which is expected to occur in 2020.
These actions include preparing and executing any necessary plan amendments and/or restatements regarding the plan termination, including amending the plan to provide for a limited lump-sum window for eligible participants. It also includes filing an application with the IRS to determine the tax-qualified status of the plan at the time of termination, and filing all appropriate notices and documents related to the plan’s termination with the Pension Benefit Guaranty Corporation (PBGC), the US Department of Labor, the trustee, and any other appropriate parties.
Upon receiving approval from the IRS and the PBGC in 2020, and following completion of the limited lump-sum offering, the company said it will make an additional cash contribution in order to fully fund the inactive plan on a plan termination basis, followed by the purchase of annuity contracts to transfer its remaining liabilities.
According to SEC filings, these additional cash contributions are expected to range from $75 million to $125 million. However, the actual amount of the cash contribution requirement will depend on the nature and timing of participant settlements, as well as prevailing market conditions. The company also said it expects to recognize non-cash pension settlement charges totaling between $525 million and $575 million on the settlement of the obligations of the plan.
The termination of the Inactive Plan will apply to participants who have separated service from Sonoco and to nonunion active employees who no longer accrue pension benefits. There is no change in the benefit earned by the approximately 11,000 impacted participants as a result of these actions, and the company will continue to manage the Sonoco Pension Plan, which is comprised of approximately 600 active participants who continue to earn benefits in accordance with a flat-dollar multiplier formula.
Avery Dennison Transfers $750 Million in Pension Obligations
Volatile Markets Are Spurring Defined Benefit Plan De-Risking