Largest Corporate Pension Sponsors Lose $300B in Funding in 2008

March 11, 2009 ( - A look at actual 2008 disclosures for the largest 100 U.S. corporate pension plan sponsors finds aggregate funding fell by $303 billion last year, according to a new analysis by Watson Wyatt.

The pension plans went from a $86 billion surplus at the end of 2007 to a $217 billion deficit at the end of 2008, according to a Watson Wyatt press release. Overall, aggregate funding levels decreased by 30 percentage points, from 109% funded at the end of 2007 to 79% funded by the end of 2008.

The distribution of funding ratios significantly shifted. At the end of 2007, 80% of plan sponsors had realized funding levels of over 90%, but by the end of 2008, only 14% were more than 90% funded, the press release said.

According to the analysis, pension contributions increased slightly last year – from $17.7 billion in 2007 to $18.4 billion in 2008. Companies are expecting to make substantially larger contributions in 2009, up to more than $27.7 billion. As many firms will not need to make their required contributions until 2010, Watson Wyatt said this increase can be attributed to companies making payments now to shore up funds in anticipation of future requirements.  

Pension plan assets declined by 26% in 2008, largely due to significant equity losses. The percentage of a plan’s portfolio invested in equities had a direct relationship with investment losses in 2008 – plans that had less than 20% of their portfolio in equities lost an average of 6%, while those with an equity allocation of 55% – 59.9% lost an average 23.6%. Those with an equity allocation of 90% or more lost 32.3%.

“Plan sponsors were hit hard with a double whammy in 2008 with severe market declines and new funding rules coming into effect,” said David Speier, senior retirement consultant at Watson Wyatt, in the announcement. “This combination will require employers to make staggering pension contributions over the next couple of years, at a time when they can least afford them.”

The analysis was based on pension disclosures for the 100 largest pension plan sponsors among publicly traded companies with year-end 2008 fiscal dates, ranked by amount of plan liability at the end of 2007.