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Largest U.S. pension plans' assets fall $217 billion short

By Sandra Block and Sue Kirchhoff, USA TODAY

Last year's stock market collapse left the nation's largest private pension plans with a deficit of more than $200 billion, a study released Wednesday said, which could force companies to invest more money in their plans when they can least afford it.

The nation's 100 largest corporate pension plans were underfunded by $217 billion at the end of 2008, holding only 79% of the assets needed to cover estimated long-term liabilities. That compares with an $86 billion surplus — 109% of estimated liabilities — at the end of 2007, according to Watson Wyatt, a human resources consulting firm.

Pension plans' assets fell 26% last year, primarily because of investment losses, the study said. A separate study released Wednesday by Milliman said the nation's largest plans lost an additional $54 billion in February.

It's not unusual for companies to have underfunded pension plans, and the deficit typically doesn't affect payouts to near-term retirees. But to avoid future problems, companies with underfunded pensions are required to increase contributions.

Companies are also facing stricter federal funding requirements for pensions, says David Speier, senior retirement consultant at Watson Wyatt. "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."

Relaxing the new funding requirements would take pressure off plan sponsors but could jeopardize the long-term health of pension plans. The Pension Benefit Guaranty Corp., which insures pensions for millions of retirees, already has an $11 billion deficit. That deficit is expected to rise as the recession drives more plan sponsors into bankruptcy.

The National Association of Manufacturers lobbied unsuccessfully for pension relief in the $787 billion stimulus plan that passed Congress this year. The issue remains a top priority for the group, because 50% of PBGC plans are held by manufacturers. Dena Battle, NAM director of tax policy, says her members "absolutely" want their plans to be funded and are simply looking for temporary, targeted relief until markets recover. "This is putting some (companies) on the verge of bankruptcy," she says.

Lynn Dudley, vice president of retirement policy for the American Benefits Council, says that when the new funding requirements were enacted, no one dreamed of plunging stocks and asset prices, or that interest rates would fall to such low levels.

"The only time an underfunded plan is a problem is if a company goes out of business," Dudley says. "The very worst thing we can do is not save the companies. If you don't save the companies, you can't save the plan."

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