Crisis Could Set Pension Deficit Record, S&P Says

Companies in the S&P 500 could face their largest pension deficit ever because of this year’s financial crisis, according to a new report.

At the end of 2007, S&P 500 companies’ pension plans were overfunded by $63 billion—the highest since 1995, according to the report by S&P analyst Howard Silverblatt. Companies predicted an 8 percent return on assets in 2008, but “any pension fund manager that is even breaking even this year is most likely demanding a bonus,” he wrote.

Pension funds of S&P 500 companies have 61 percent in equity, 28 percent in fixed income, 4 percent in real estate and 7 percent in other investments.

“The U.S. market is down over a third, and that’s good compared to the emerging markets that are down over half this year alone—so that 61 percent in equity may not be doing that well,” Silverblatt said in the report. “When you calculate it all out at the current market returns, or even assuming a nice Q4 rebound, you get a number that is worse than the $219 billion in underfunding reported in 2002.”

He said the solution to the problem is “large unplanned cash infusions.”

Silverblatt predicts that few companies will remain overfunded, which will result in more disappearing defined-benefit plans.

Filed by Timothy Inklebarger of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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