Administration December 2, 2008

S&P 1500 Pension Plans Hit Record Deficit

December 2, 2008 (PLANSPONSOR.com) - Losses for pension plans sponsored by the nation's largest U.S. companies have turned a surplus of $60 billion at the end of 2007, to a record deficit of $280 billion at the end of November, according to Mercer.
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A Mercer press release said pension plans sponsored by companies in the S&P 1500 suffered their second consecutive month of record losses in November, of $130 billion. Losses in October totaled $110 billion, losses in the first three quarters of 2008 reached $100 billion, Mercer said.

Mercer’s analysis found that the aggregate funded status of S&P 1500 DB plans fell from 104% at the end of 2007 to 80% at the end of November. In addition, without a significant increase in high-quality corporate bond yields, used to measure plan liabilities, the funded status would be worse, according to the press release.

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Mercer says the decline in funded status will affect companies in a number of ways:

  • Companies will have to reflect the pension plan deficit on their balance sheets, and the reduced balance sheet strength could affect capital expenditure decisions, loan covenants, and credit rating decisions;
  • The pension expense that companies report on their financial statements is likely to be significantly higher in 2009, reducing corporate profitability and reported 2009 earnings; and
  • Companies will likely have to make higher cash contributions to their pension plans.

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