Weyerhaeuser Co. made some news last week with the announcement of plans to transition to a new chief executive, following the retirement of the current CEO.
That’s of interest to those who work at the company, as well as those with some historical perspective on Weyerhaeuser, which we’ll get to a second. For the broader population, though, that was only the second most significant story to come out of Weyerhaeuser last week.
Significant not in the sense that it directly affects people but significant in that it brings some attention to an often ignored but hugely important — and potentially expensive — issue.
Pensions and retirement income.
Weyerhaeuser announced it is taking two major actions to restructure its pension plans.
First, the company will offer “select U.S. pension plan participants” a lump-sum distribution for their pensions. Then it plans to transfer a portion of its U.S. pension assets and liabilities to an insurance company through the purchase of a group annuity contract.
“There will be no change to retirees’ pension benefits as a result of the group annuity transaction,” the company pledges.
Weyerhaeuser says the transactions will reduce pension liabilities for its U.S. plan by about 30 percent and cut the number of plan participants and beneficiaries by half.
A smaller pension plan is reflective of a smaller company. In 2002, Weyerhaeuser had revenue of $18.5 billion. Last year revenue was about $7.2 billion.
It’s also about simplifying the pension structure. Mixed in with the total number of retirees are those came to Weyerhaeuser, and retired from it, through acquisitions of companies that have since been discarded as the company downsized to a timberland-focused real-estate investment trust.
It’s not the Weyerhaeuser people knew from the days when it was based in Federal Way, or before that in Tacoma. The succession-plan announcement means the company has or will have had five CEOs — Jack Creighton, Steve Rogel, Dan Fulton, Doyle Simons and, next up, Devin Stockfish — since the days a Weyerhaeuser was running Weyerhaeuser.
Nor are a lot of American corporations what they were three decades ago, in what turned out to be the twilight of an era in which employees who put in their years with one of those corporate giants could expect to collect a comfortable defined-benefit pension upon retirement.
Thus pension plans are no longer what they were three decades ago.
The percentage of private-sector American workers covered solely by a defined-benefit plan — the company says what it’s going to pay, and it takes on the job of coming up with the money — plunged from 28 percent in 1979 to 2 percent in 2014, according to data from the Employee Benefits Research Institute.
The percentage enrolled in defined contribution plans — employees put in a share of the pay, sometimes with a match from the company — surged to 34 percent from 7 percent over that period.
Plans combining elements of the two have been remarkably consistent at about 10 percent.
Companies would just as soon not be in the pension-benefit business. They’re an expensive headache when times are good, and a decade ago times were decidedly not, which cuts the returns pension funds receive on their investments. That means increased liabilities for defined-benefit plans at a time when plan sponsors are feeling the financial squeeze from multiple directions.
What happens then is that plans build up big unfunded liabilities. Recent increases in interest rates, and the stock market’s continued bull run, have helped narrow the overall gap. Pension consulting firm Milliman reports the funded ratio (assets to liabilities) for the 100 largest corporate defined-benefit pension plans was 93.4 percent at the end of July.
“The last time funded ratios were this high was nearly a decade ago in the fourth quarter of 2008,” Milliman reported.
Better market performance is also good news for the millions of Americans in a defined contribution plan who spent several years not opening 401(k) and IRA account statements because they didn’t want to be made ill by what they’d see.
The Great Recession did a lot of damage to retirement income, investment portfolios and in some cases entire plans. Individual workers couldn’t afford to retire. Retirees lost income. Some city and state governments built up unfunded liabilities that now threaten to eat their budgets. Companies no longer had generous pension plans to recruit and retain employees.
The effects are still being felt, and now Americans are dealing with the pressures and anxieties of taking on more of the retirement planning and funding burden. They also get to worry about what happens if the economy slows down, the stock market slows down, both slow down, or Social Security and Medicare start running deficits.
But then, everyone needs an activity to fill the golden years of retirement.
This story was originally published September 01, 2018 7:00 PM.