Sonoco announced it is officially terminating its U.S. Pension Plan for Inactive Participants effective September 30.
The July 17 announcement indicates the company intends to transfer pension risk to an insurer. John Florence, vice president of human resources and general counsel, said, “Today’s action by the Board is better described as a ‘transition of obligations and related assets’ which, once executed, will result in the full funding of the Inactive Plan’s benefit obligations. The Company will be taking actions in the coming months to prepare for the transition of the Inactive Plan’s obligations and assets, which is expected to occur in 2020. I want to emphasize that these actions will not reduce any retirement benefits earned by the Inactive Plan’s participants and will, instead, have the impact of making those benefits more secure.”
Sonoco previously announced voluntary contributions of approximately $200 million to its two U.S. defined benefit (DB) plans.
Julie Albrecht, Sonoco’s vice president and chief financial officer, said the voluntary contributions are projected to increase the funded status of the company’s DB plans to approximately 100%.
“This is another significant step in our actions to de-risk our U.S. pension plans. By making the voluntary contributions, along with the Plan’s Investment Council action to increase the allocation of pension assets to fixed-income investments, we are taking advantage of our strong financial position to limit the impact of future market volatility to our free cash flow,” said Albrecht in May.
To fund the voluntary contributions to the pension plans, Sonoco used what is called “borrowing to fund,” entering into a $200 million, one-year term loan with a relationship bank.Sonoco previously closed its U.S. DB plans at the end of 2003 and ceased additional benefit accruals at year-end 2018 involving all employees in the final average pay pension formula within these pension plans.