3M to inject up to $1 bn into pension funds

Diversified U.S. conglomerate 3M Co is topping up staff pension plans with $800 million to $1 billion cash in 2012 as falling discount rates inflate its long-term liabilities, becoming the latest American company to inject cash into underfunded retirement plans.

The maker of Post-It notes, Scotch tape and components for consumer electronics, in its annual report filed on Thursday with the U.S. Securities and Exchange Commission, said the higher pension expenses will reduce 2012 pre-tax earnings by $89 million, including $26 million in charges related to early retirement packages for 616 people.

3M is not alone in its pension shortfall. Boeing Co, General Electric Co, DuPont, Alcoa Inc, Honeywell International Inc and Raytheon Co all plan hefty cash injections into underfunded pension plans.

Pension top-ups are expected by analysts to take a big bite out of U.S. corporate earnings this year due to more rigorous funding requirements and an erosion of investment returns caused by weak stock markets and low interest rates.

An estimated 97 percent of the pension plans operated by companies in the S&P 500 have underfunded pensions despite generous contributions last year, according to a Credit Suisse analysis.

St. Paul, Minnesota-based 3M said its long-term liabilities increased by approximately $2.4 billion as of the end of last year, in large part because lower discount rates inflated the size of its $18.7 billion pension obligation by about 15 percent.

The size of a pension obligation is typically based on two key assumptions -- discount rates and the expected return on plan assets. Discount rates reflect the ability of the debtor to pay off the liability based on the performance of assets in the plan. 3M now expects a lower long-term rate of return on those assets than it had previously.

As of the end of 2011, 3M said its worldwide pension plans were 82 percent funded. U.S. qualified pension plans were approximately 86 percent funded, international plans were 87 percent funded, and the U.S. non-qualified pension plan is not funded.

U.S. qualified plans make up 71 percent of 3M's entire worldwide pension obligation.

EMPLOYEE NUMBERS UP

3M plans to pay $300 million in cash to pension funds in each of the first two quarters of the year. The company had $4.6 billion of liquidity and $5.2 billion of debt as of Dec. 31.

3M has said currency-related headwinds and a higher tax rate will also hurt 2012 earnings. But the company's expectation for sales growth, productivity improvements, and higher prices for its products will help offset those negative factors.

In its filing, 3M said that worldwide employees increased by 4,141 in 2011 to 84,198, largely driven by acquisitions and hiring needs in developing economies. The same factors were behind a 5,222-employee increase in 2010.

Relatively few of those jobs were added in the United States, where the company is actually looking to slim down. In December, 3M started offering early retirement incentives to 4,900 employees, expecting about 15 percent, or about 735 employees, to participate in the program.