wrecking ball hitting manGlobal equities lost 13 percent in value in Q4, negating most ofthe largest pensions' growth in funded ratios for the year. (Photo:Shutterstock)

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Sponsors of the 20 largest corporate pension funds entered the fourthquarter in 2018 poised for a banner year, as strong equity markets, rising interest rates, and billions indiscretionary cash contributions pushed the aggregate funding levelto 90 percent, a level not seen in a decade.

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But after positive returns in the first three quarters of 2018,the S&P 500 ended up down nearly 7 percent, the first time inhistory the index took a loss for a year in which it saw gains inthe first three quarters. The S&P shed nearly 8 percent inDecember, the worst performance for the month since 1931.

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All told, global equities lost 13 percent in value in Q4,negating most of the largest pensions' growth in funded ratios forthe year, according to Russell Investments' annual $20 Billion Clubreport, which tracks pensions with $20 billion or more inliabilities.

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The aggregate funded ratio for the end of 2018 was 85.3 percent,up from 84.4 percent at the beginning of the year. The totalfunding deficit was $137 billion at the end of the year, the lowestlevel since 2013, according to Russell's report. All told, theplans hold $896.6 billion in liabilities.

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The plans did shed $20 billion in liabilities over the year, asactuarial assumptions benefited from a 60-to-70 basis pointincrease in discount rates.

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And plans continued making aggressive discretionary cashcontributions. The $28.1 billion in contributions was $6 billionmore than Russell had projected at the beginning of the year, andwas the third highest contribution rate in recent years. Sponsorspumped $37.5 billion into plans in 2017, motivated by higherwrite-offs before the Tax Cuts and Jobs Act slashed the corporatetax rate from 35 percent to 21 percent.

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Of the 20 plans in the $20 billion club, 75 percent madecontributions greater than $1 billion in 2017 and 2018.

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But the window to make contributions against the higher tax ratehas closed, leaving sponsors with little appetite to continue thecash infusions.

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“For most of these sponsors, funding requirements in U.S. DBplans are at or near zero,” writes Justin Owens, director, clientstrategy and research, and author of Russell's report.

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Owens says 2019 contributions may drop to their lowest level in15 years. Annual filings to date show only $8.5 billion in expectedcontributions.

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General Electric made a $6.8 billion contribution in 2018, thelargest among the $20 billion club. GE invested nearly $10 billionbetween 2017 and 2018, helping to push its funded ratio from 67percent to 75.6 percent.

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Lockheed Martin contributed $5 billion; FedEx $2.6 billion;Raytheon $2.1 billion; and General Motors and Dow Chemicalcontributed $1.7 billion.

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The 20 plans paid $54.1 billion in benefits from $759.5 billionin aggregate assets. They assumed $13.5 billion in new benefitaccruals. The improved discount rates saved the plans $56.3 billionin liability costs.

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Russell also notes the continued trend of risk transfer deals.FedEx and MetLife inked a transfer that moved $6 billion inliabilities off the plan's books, the largest deal in sixyears.

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Lockheed Martin shed about $2.5 billion in liabilities in a dealwith Prudential and Athene, affecting nearly 40,000 retirees. Thatdeal included an annuity buy-in purchase, wherein Lockheed willcontinue to pay benefits directly, but will ultimately bereimbursed under the contract.

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The buy-in structure is more common in Europe, and may signal anew strategy other U.S. pensions will consider, according toRussell's report. READ MORE:

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