Verizon Communications Inc. ’s pension deficit has been sliced by almost half this year because of rising interest rates, according to the Chief Financial Officer, Fran Shammo.

An increase in discount rates, used to calculate the present value of future pension obligations, helped reduce the telecommunications company’s unfunded liability by roughly $4 billion, he said.

Verizon reported an unfunded liability—the difference between its pension obligations and the amount in assets held by the plan—of $8.5 billion at the end of last year. The company owed roughly $26.8 billion and held assets of $18.3 billion.

“The unfunded liability will continue to close,” if interest rates keep rising, he added in an interview with CFO Journal. That would mean fewer and lower cash contributions to Verizon’s pension plans.

Rising rates have benefited most companies with pension obligations. Corporations use a so-called discount rate based on corporate bond yields to calculate the present value of payments they expect to make to retirees over the life of their plan. The higher the discount rate, the lower the company’s pension liabilities.

Rates rose to 4.74% in June from 4.41% in May. And that narrowed the gap of underfunded liabilities by a combined $47 billion for the 100 largest defined benefit plans, according to Milliman Inc., an actuarial firm. Their deficits now total $179 billion.

Verizon has moved aggressively to reduce the burden of its pension obligations. Last October, the company bought an annuity that transferred roughly a quarter of its pension liability to Prudential Financial Inc.

Verizon on Thursday reported that second-quarter earnings rose 23%.

Source: Verizon