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.

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.

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.