Pension Plans Post First Gain In Funding in Eight Months

By Nancy Trejos
Washington Post Staff Writer
Friday, April 10, 2009

The finances of some of the nation's top pension plans, which have been underfunded this year, improved in March for the first time since July, according to a study released yesterday.

In its monthly survey of the nation's 100 largest pension plans, global consulting and actuarial firm Milliman found that funding improved by $48 billion. Nonetheless, these plans, which until last summer had a surplus of funds, were still below the 100 percent funding level they will eventually be required to meet by law.

Another study, released earlier this week, also found an improvement in the funding status of the nation's largest retirement programs. Pension plans at Standard and Poor's 1500 companies had a $158 billion improvement in funding in March, according to Mercer, a benefits consulting company. Despite that gain, the plans had a $215 billion deficit at the end of March. Pensions were 83 percent funded.

Until mid-2008, the largest pension plans were overfunded. But dramatic stock market declines left pension funding in the mid-70-percent range for much of this year. Pensions, also known as defined benefit plans, are heavily invested in the stock market. If the market falls, causing a drop in funding, companies have to pump more money into the retirement plans. Companies called it yet another burden they have to face in this economic downturn.

"It's the first positive sign that plans have seen since the real impact of the credit crunch hit pension plans at the end of last year," said Adrian Hartshorn, a member of Mercer's Financial Strategy Group, which helps companies manage financial risk in their retirement plans.

Pension experts called it a positive development, but said they were unsure of its sustainability. The reversal of fortune was caused by a stock market rebound that increased assets and a jump in discount rates that decreased liabilities. "While this is encouraging, we're still not out of the woods," said John Ehrhardt, co-author of the Milliman 100 Pension Funding Index.

Milliman's analysis of the 100 pension plans found that in the past 12 months, funding has fallen by $269 billion, leaving the programs 77.7 percent funded. For the rest of 2009, the funded status of the plans is projected to decrease slightly for a deficit of $260 billion by Dec. 31.

Pension funding has been a matter of much debate in Congress in the past year. In 2006, lawmakers created more stringent funding rules that required companies to bring their pension plans to 100 percent funding on a phased-in schedule. The companies had to meet a certain benchmark each year until funding reached 100 percent. If they didn't meet that benchmark, they would be forced to fully fund their pensions immediately.

After companies complained that the rules would put them in financial straits, Congress in December eased them, eliminating the punitive measure of 100 percent funding if the benchmark is not met. Still, companies will be required to meet each year's benchmark -- 94 percent funding this year and 100 percent by 2011. Pension experts said the improvement in funding in March won't necessarily help the companies because they will be judged by the full year's performance.

"You're not going to make this up with just an asset rebound," Ehrhardt said. "There's going to have to be a significant contribution from employers in the next three to five years."

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