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Member, Beacon International Group, Ltd.
Hammered by the crash in the equities markets, pension plans sponsored by large companies suffered a dramatic reversal of fortune in 2008, with the average funding level sinking to 75% at year-end, down from 104% a year earlier, according to an analysis released Wednesday.
That unprecedented drop was the result of a huge decline in the value of assets held in pension plans sponsored by the 772 companies in the S&P 1500 that offer defined benefit plans.
New York-based Mercer L.L.C. estimates that the pension plans lost $469 billion in 2008, converting a $60 billion surplus at the end of 2007 to a $409 billion shortfall at the end of last year.
"This is a very difficult time for pension funds," said Adrian Hartshorn, a Mercer principal in New York.
The fall in funding levels "will reduce balance sheet strength, which leads to consequences for several areas of the business, including capital-expenditure decisions, loan covenants and credit rating decisions," Mr. Hartshorn said.
To meet funding requirements set by federal law, employers will have to pump in tens of billions of dollars in new contributions to shore up their plans, while some companies may decide to freeze their plans.
More employers will take a step back and ask if their plans still are viable, Mr. Hartshorn said.
The release of the Mercer analysis comes as business groups are expected to renew their push to convince federal legislators to temporarily ease funding rules. Last month, Congress approved legislation that provides a modest relaxation of funding requirements.