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Higher Bond Yields, Lower Taxes Could Boost DB Plans

Growing U.S. bond yields and changes to corporate taxes could pay dividends for private-sector DB plans, some analysts argue.

There were hints of DB plans’ improving fortunes by the end of January, Reuters says, when the estimated aggregate funding status of DB plans sponsored by the Standard & Poors 1500 rose to 87%.

DB plans’ funding ratios told the tale of trends in place since 2008, says Reuters: low returns on bonds and rising market value of their liabilities. But that can change with rising interest rates and higher bond values, and better bond yields can spell smaller annual cash infusions for DB plans, Reuters reports Mercer Investment Consulting partner Michael Schlacter as saying.

In addition, some private-sector employers offering DB plans have been increasing their contributions to their pension plans since they may be able to take advantage of a deduction at the old 35% corporate tax rate before the 21% rate kicks in. In fact, says Reuters, five began to do so in 2017:

  • United Parcel Service: +$7.3 billion

  • Boeing: +$3.5 billion

  • Verizon: +$3.4 billion

  • Delta: +$3.2 billion

  • General Motors: +$3 billion