Updated Tuesday, September 2, 2014 as of 7:59 AM ET

3M to Deere See $76B Pension Burden Easing as Fed Tapers

(Bloomberg) -- 3M Co. and Deere & Co. are among U.S. employers seeing pension costs drop from a $76 billion peak, freeing up cash to spend or return to investors, as the Federal Reserve’s pullback on bond buying boosts interest rates.

The drain on company cash is easing after rising rates and surging stock prices helped increase the pension funding levels to 93 percent last year for 418 large companies with U.S. plans, from 77 percent a year earlier, consultant Towers Watson said yesterday in a report.

Pension expenses for Standard & Poor’s 500 Index companies jumped fourfold in 2012 from $19 billion in 2008, according to data compiled by Bloomberg. Now, 2013’s increases in interest rates and equities probably will continue this year as the Fed begins to taper bond purchases, pushing defined-benefit plans closer to full funding levels, Towers Watson said.

“A lot of good news has flowed their way, and they’ll have more options and opportunities this year than they did last year,” Dave Suchsland, a Towers Watson senior consulting actuary based in Philadelphia, said in a telephone interview.

Deere, the world’s largest maker of agricultural equipment, has projected pension expenses to be $150 million lower in 2014. 3M, whose products range from Scotch tape to dental braces, is forecasting costs as low as $100 million, down from $534 million in 2012.

As pension funds become fully funded, more companies may look at matching liabilities to assets to ward off future market crashes, according to pension advisory firms including Milliman Inc. and Towers Watson. Others are using the higher funding status to reduce risk by paying retired employees lump sums.

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