Timing Pension Moves as Tax Rates Fall and Interest Rates Rise

Blog Post

Timing Pension Moves as Tax Rates Fall and Interest Rates Rise

Most MNCs still have more than a month to contribute to pensions and save on taxes.
 
Pensions, 401(k) plans and other retirement accounts are no joke. Not having enough money in them is one big reason so many people across the world have a fear of the future—a fear now fanned by worries that robots will eventually make many workers obsolete. But while pensions are no laughing matter, managing them while balancing the other financial needs of a company requires a firm command of what every great comedian has: excellent timing. 
 
The timing of pension contributions by multinationals got more interesting after US tax reform passed at the end of 2017. While the lower corporate rate of 21% is great for MNCs for obvious reasons, the reduction from 35% meant a lower tax deduction for pension fund contributions for qualified plans. The good news for corporates: the window for making contributions and getting the higher deduction did not close at the end of 2017. But for most companies the window will shut in mid-September.
 
That reality has sparked many NeuGroup members with pension responsibilities to wade deeper into the contribution waters in 2018. The topic drew plenty of attention at peer group meetings, as did the related subject of pension de-risking, including annuitizing some liabilities. We got a fresh reminder of all this after Raytheon last week said it would make a $1.25 billion pension contribution by Sept. 15. For more on what Raytheon and other companies are doing, read more here.
 
Reality Check for Fintech’s Disruptive Potential 
 
Treasurers straining to keep up with digital transformation can’t ignore the growing number of fintech startups offering solutions that could change how MNCs work with their banks—most of which are increasing their collaboration with fintechs. But a new report says bank concerns over security, financial stability and scalability are holding back the growth of fintech startups in the wholesale payments space. 
 
The report by Aite Group, “The Wholesale Payments Fintech Vendor Landscape,” says, “Most of these challenges are issues that larger, more established fintech firms and financial services providers can overcome more easily given their existing regulatory compliance, understanding of the market, and proven track record of deployments and clients.”
 
But the report’s author, Aite Group senior analyst Gilles Ubaghs, says it would be wrong to write off startups in the wholesale payments space. “There’s a big role for fintech startups to play,” he said. “They will have a big influence, even more than they are now, but it’ll be via partnerships of some form with larger players. That’s where they’re going to grow. They’re too small to go it on their own.”
 
Part of the proof that startups have a long way to go in the payments space is, of course, market share. Aite’s survey of banks found fintech heavyweights, such as ACI, FIS and Fiserv, dominate the wholesale payments landscape, accounting for 58% of bank infrastructure. Big IT vendors, including IBM and Oracle, account for 19%. Midsize fintech players account for only 6% of infrastructure, while startups hold an average of just 3%. 
 
“Therefore, their current direct impact in terms of wholesale payments infrastructure remains negligible,” the report says. “From a wholesale payments perspective, current bank positioning remains well-established, with little sign of any immediate threat of critical disintermediation. The Uber or Airbnb of wholesale payments looks increasingly unlikely.” 
 
Mr. Ubaghs expects to see more acquisitions and investments in startups by large fintech players and banks as well as ongoing collaboration in incubators. And, he says, the negligible market share startups have now “means that they have scope for significant growth, particularly as financial institutions become more comfortable with working with these smaller firms in less mission-critical areas of wholesale payments and other areas of the bank.” 
 
 
For over 20 years, iTreasurer has delivered intelligence for treasurers. Based on exclusive access to senior treasury executives who are members of The NeuGroup Network of treasury peer groups, iTreasurer takes their real-world experience to produce articles, case studies and reports that are specifically meaningful to treasury best practice. www.iTreasurer.com.
0