Yet in those same two years, GE spent little more than $2 billion on total pension contributions, which hasn’t been nearly enough to keep the overall shortfall from widening. (The company also curtailed capital investments.) At the end of 2016, its pension had $94 billion in obligations but only $63 billion in assets -- a funding ratio of 67%.

“GE has the tension between financial-ization and innovation,” said William Lazonick, a professor of economics at the University of Massachusetts Lowell. “People at the top are living in fear of hedge fund activists and worry about their share price rather than what is going on with the company.”

To make matters worse, GE shares have still underperformed even with the buybacks -- though they did help Immelt meet one of the goals used in determining his bonus last year. Since October 2015, when Peltz first disclosed his position in GE, the stock has returned 20%, less than half the gain for industrial companies in the S&P 500.

The financial consequences of GE’s short-termism have been considerable. In addition to the “anemic” free cash flow from its industrial businesses, GE’s pension hole and its indebtedness helped subtract roughly $8 per share from its equity value, based on a sum-of-the-parts analysis by Cowen & Co. That’s equal to $70 billion in market capitalization. To put it another way, the discount amounts to eight years of per-share earnings based on 2016 results.

Hard Choices

Those problems “prevent Mr. Immelt or his successor Mr. Flannery from dramatically transforming the portfolio,” according to Cowen, which put out its report on June 12, the day that GE announced Flannery would succeed Immelt as chief executive officer.

When it comes to dealing with GE’s pension, Flannery may have few good options. While many other companies, including General Motors Co., have offloaded some of their obligations to insurers, it could come at a considerable cost because of how big and underfunded GE’s pension has become. The company has the largest projected benefit obligation of any S&P 500 member and among the top 10, no one has a lower funding ratio.

And the longer its pension remains underfunded, the costlier it becomes. The Pension Benefit Guaranty Corp., a government agency that acts as a backstop when plans fail, has more than tripled its rates for companies with funding deficits, and they’re set to rise even more in the next two years.

“Those premiums have gone significantly higher,” said Michael Moran, chief pension strategist at Goldman Sachs Group Inc.’s asset manager. Depending on the circumstances, “it may be more advantageous to lower what you pay for the premiums than buy back stock.”

'Risky Strategy'

Because interest rates are still relatively low, it’s possible for GE to borrow money it needs to cover its shortfall. Both Verizon Communications Inc. and FedEx Corp. sold bonds this year to do just that. But according to Cowen, GE may be constrained in how much more debt it can take on because it’s already on the hook for about $130 billion.

And even if GE is able to fully fund its pension with debt, there’s no guarantee it won’t fall behind again. Investing in safe, low-yielding bonds might not be enough for GE to earn the 7.5% return that it expects for its pension assets each year and pay for the debt that it incurs. Taking on more risk could leave its pension vulnerable to another market downturn.

“This would be quite a risky strategy,” Mitchell said. “Any unpleasant investment surprises would leave the pension even worse-funded than now.”

Earning enough will be crucial. Even though GE ended its defined benefit plans for new hires in 2012, the company still needs to pay out roughly $47 billion in pension benefits to its retired employees and their beneficiaries over the next 10 years, a regulatory filing showed. That’s half its total obligations.

It wasn’t supposed to be this way. According to Dennis Rocheleau, a 36-year GE veteran who was its chief labor negotiator until 2004, the company considered its pension well prepared and thought its investing prowess could help keep the plan in shape. No one could foresee the financial crisis or the rock-bottom rates that followed.

Competing Priorities

We were “smug about our position,” said Rocheleau, who has spearheaded an effort opposing GE’s decision to reduce some health benefits for retirees.

What Flannery will do now is anyone’s guess. And truth be told, GE’s employees have a stake in seeing the company’s stock rise because the pension trust itself owned about 32.9 million GE shares at the end of 2016, according to data compiled by Bloomberg.

During a conference call to discuss the CEO transition and his priorities, Flannery said that “it is important that we’re always mindful of the impact on all of our stakeholders.”

“So, obviously, our customers, our employees,” he explained before adding, “but I’d say, especially our shareholders.”

By Katherine Chiglinsky, Brandon Kochkodin and Richard Clough