2008 Leaves Pensions Underfunded

Watson Wyatt estimates that corporate pension plans began 2009 with $1.63 trillion in assets and $2.12 trillion in liabilities, Warshawsky said. The firm estimates that companies will have to more than double their contributions to pension plans this year, to $111.2 billion from $50.5 billion in 2008, he said.

Both Mercer and Watson Wyatt advise companies on employee benefits.

Some business groups have been calling for relief from the federal law that would force them to boost pension fund contributions in the short run, and the government has already eased some requirements. Relaxing the requirements could entail another compromise -- the health of the pension plans.

Even before the current recession, traditional pension plans that promise fixed retirement benefits were an endangered species for workers in the private sector. "As U.S. manufacturing and the U.S. organized labor footprint have contracted, the defined benefit plan has contracted," said the Brookings Institution's J. Mark Iwry, a former pension system regulator.

Pensions have largely been supplanted by 401(k) plans, which offer no guaranteed payouts.

Like pension funds, Americans' 401(k) accounts have generally plummeted over the past year, and some companies have added to the strain by cutting matching contributions.

Whether the responsibility rests with corporate pension fund managers or individual employees managing their accounts, the nation's ability to convert relatively low savings rates into comfortable retirements depends on investments not merely outstripping inflation but delivering strong and stable returns over the long run. That proposition has been sorely tested of late.

Keith Ambachtsheer, an adviser to pension funds, says the nation may be in store for "a radical rethinking of how we deliver pensions to private-sector workers."

Increasingly, the burden may fall to taxpayers, as it has with other aspects of the nation's financial troubles, said Kent Smetters, an associate professor at the University of Pennsylvania's Wharton School.

When companies go bankrupt and are unable to shoulder their pension obligations, the federally chartered Pension Benefit Guaranty Corp. steps in and covers the shortfall, subject to legal limits that would leave many higher-paid workers with smaller pensions than they had been promised.

The PBGC is funded through insurance premiums paid by employer-sponsored pension funds, but Smetters predicted that the PBGC eventually will need a federal bailout.

As of Sept. 30, when its last fiscal year ended, the PBGC reported a deficit of $11.15 billion.