Strategies for Decreasing a Pension Plan’s Unfunded Liability and Help Preserve Cash Through Real Estate

by | 25 April 2018

As a trustee of a pension plan, you’re becoming increasingly alarmed at the dramatic decline in the plan’s funded status, despite healthy recent investment gains. You complain to company executives that substantial cash needs to be contributed to the plan to preserve its declining health, but the company maintains it simply lacks the cash to make more than its minimum annual contribution, if that.

This scenario plays out nearly every day, and although to date, there has been a lot of hand- wringing about the dire fiscal health of many corporate plans, precious few solutions have been proffered to cure the problem. Well, there’s a real solution that’s both tried and true and of real value to both the plan and the company: the contribution of company-owned real estate to the plan in lieu of cash to dramatically increase the plan’s funded status.

Before you hyperventilate that this is a crazy idea, hold your preconceptions and let us explain. In certain instances the company may monetize the current value of its real estate by contributing it to the plan, while retaining the use of the property with little or no change in operations. This not only pulls dormant value out of the real estate, but frees up cash that would otherwise be lost due to the company’s plan contribution.

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