Like so many companies in America, Boeing Co. has largely neglected the gaping deficit in its employee pension as it doled out lavish rewards to shareholders.
What’s raising eyebrows is how it plans to shore up the retirement plan.
Last month, Boeing made its largest pension contribution in over a decade. But rather than put up cash and lock in the funding, the planemaker transferred $3.5 billion of its own shares, including those it bought back in years past. (The administrator says it expects to sell them over the coming year.)
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.
“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.”
Under Chief Executive Officer Dennis Muilenburg, Boeing’s pension shortfall has widened as the Chicago-based company stepped up share buybacks. The $20 billion gap is now wider than any S&P 500 company except General Electric Co. And relative to earnings, Boeing shares are already trading close to the highest levels in a decade, a sign there might be more downside than upside.
‘Good Value’
Boeing disagrees and sees the strategy as a win-win.
“We continue to see Boeing stock as a good value,” spokesman Chaz Bickers said. “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.”