CIO: When you funded the plan with
$1.25 billion this year, with plans
to borrow $1 billion to do it, was it
because of the Pension Benefit Guaranty Corporation (PBGC) rate hikes
over the next two years?
Hunkeler: That was an important part
of the equation, but I think it was bigger
than that. We look at our pension plan as
part of our overall debt structure, so one
of the things we were trying to answer at
the company level was where we wanted to
be from a total debt perspective. We also
considered the higher tax deduction benefits
that would be available, should tax reform
actually produce some fruits, making it
better to take those deductions this year,
rather than in the future. Finally, this was all
part of a larger plan to right-size our pension
liability relative to the size of the company.
CIO: Can you go into detail on that?
How do you determine the right size
of your pension liability?
Hunkeler: Well, you compare yourself to
other companies in your industry, or just to
other companies in general. Our pension
liability was quite large relative to the size
of the company. The market value of the
company was around the $20 billion range,
and our liabilities were around $14 billion.
CIO: How did your funded value
change after the infusion?
Hunkeler: At the end of last year, we were
77.5% funded on a pension benefit obligation
(PBO) basis. The $1.25 billion contribution
we made in August raised our funded status
considerably. Plus, we’ve enjoyed good investment results so far this year. That combination has lifted our funded status significantly.
His thoughts on date triggers, derivatives, and International Paper’s
$1 billion debt offering to fund its DB plan.
Reported by Christine Giordano / Art by Tim Bower