With pensions around the country facing funding shortfalls, Boeing has taken an unorthodox approach to shoring up its $20 billion funding gap – the second largest shortfall of any S&P 500 company behind General Electric with $57 billion in assets and $77 billion in obligations.
The planemaker transferred $3.5 billion of its own shares into the pension – essentially betting on continued growth after what’s already been a massive rally in share prices.
Via Bloomberg:
It’s a bold move, and one cheered by many on Wall Street. Yet to pension experts, it isn’t worth the risk. After a record-setting, 58 percent rally this year, Boeing is betting it can keep producing the kind of earnings that push shares higher. If all goes well, not only will the pension benefit, but Boeing says it will be able to forgo contributions for the next four years.
But if anything goes awry, the $57 billion pension — which covers a majority of its workers and retirees — could easily end up worse off than before.
Critics of the move say it’s a dangerous move. “It’s an irresponsible thing to do certainly from the perspective of the plan participants,” said Daniel Bergstresser, a finance professor at the Brandeis International Business School. “Ideally, you would like to put assets in the pension plan that won’t fall in value at exactly the same time that the company is suffering.”
Boeing disagrees
The company says the stock strategy as a win-win. “We continue to see Boeing stock as a good value,” said a spokesman for the company, adding “This action further reduces risk to our business while increasing the funding level of our pension plans. Our employees and retirees benefit as well since this action provides funding earlier, giving the plan sponsor more flexibility to grow the plans’ assets.”
While Boeing has the assets to shore up as much as $30 billion in underfunded pension liabilities, 186 of the 200 largest defined-benefit plans in the S&P 500 are underfunded.
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That’s pretty close to “cooking books”.
Tea leaves?