Overheard @: Pension relief 'killed two birds with one stone'

In a "Five Minutes With ..." podcast, Evan Inglis, chief actuary for the Vanguard Strategic Retirement Consulting group, talks with Associate Editor Lydell Bridgeford about the short- and long-term implications of the Worker, Retiree and Employer Recovery Act as it relates to pension funding relief for DB plan sponsors in light of the economic crisis.

Inglis says that as the law contained PPA technical corrections as well as provide breathing room for plan sponsors, it "killed two birds with one stone." Click here to download the audio, and click here to read the March EBN article, "Pension lifeline too short, experts say."

News You Can Use: Pension funding remains low

As another cringe-worthy sign of the times, a new Mercer data on Fortune 1500 companies show pension plan funded status at the end of Jan was unchanged from Dec., indicating funded status of plans sponsored by the largest U.S. companies remained at 75%.

Don’t hold your breath; it gets worse.

The value of both pension assets and liabilities declined in Jan, reducing the dollar amount of the estimated aggregate deficit to $380 billion from $409 billion at the end of Dec.

A Watson Wyatt survey also released today examined the pension problem over the course of 2008, finding that pension plan funding at the largest U.S. companies had reached historical lows at the end of the year.

Watson Wyatt measured the aggregate data of 450 Fortune 1000 companies, forecasting an average decline of 32% (106% in 2007 to 74% in 2008). This translates to a $445 billion total loss, annihilating a $78 billion surplus in 2007 and leaving these companies with $366 billion deficit to clean up.

Perhaps the only good news is for DC plan sponsors, and only in a misery-loves-company kind of way. --Kathleen Koster

News You Can Use: Even with pension relief, plan sponsors come up short

U.S. employers will be required to contribute more than $108 billion into their defined benefit plans this year, according to an analysis by Watson Wyatt. Although that’s roughly $16 billion less than employers would have had to contribute without the passage of a new pension funding relief law late last year, Watson Wyatt pension experts say employers will still need additional relief.

“This new law is a positive first step,” says Alan Glickstein, a senior retirement consultant with Watson Wyatt. “However, we urge lawmakers to pass additional temporary funding relief as companies transition to new, more restrictive funding requirements while battling declining pension asset values and a weakened economy.”

Watson Wyatt estimates that even with the enactment of the Worker, Retiree and Employer Recovery Act of 2008, both the required contribution levels in 2009 ($108.7 billion) and 2010 ($102.8 billion) will mark a significant jump from 2008 ($38 billion). Additionally, some employers that fail to meet the minimum 80 percent funded threshold may contribute an additional $3.2 billion. Otherwise, the payment of lump-sum benefits would be restricted under the Pension Protection Act.

“PPA will eventually lead to better and smoother funding,” says Mark Warshawsky, director of retirement research at Watson Wyatt. “But its implementation could not have happened at a worse time. Now, as contributions jump, employers may be forced to make tough choices to cut costs. We hope that with more temporary funding assistance, employers will still be able to provide defined benefits plans and their employees will continue to enjoy retirement security.”

News You Can Use (but don't want to hear): Pensions at largest companies post record losses

This past Thanksgiving, it seems DB plan sponsors were just thankful to get through November. New analysis from Mercer shows that pension plans sponsored by the largest U.S. companies suffered their second consecutive month of record losses, with their funded status falling by more than $130 billion in November.

This adds to losses of $110 billion in October and $100 billion in the first three quarters of 2008, turning a surplus of $60 billion at the end of 2007 into a deficit of $280 billion at the end of November.

The study covered plans sponsored by companies in the S&P 1500, and showed the aggregate funded status fell from 104% at the end of 2007 to 97% at the end of September, and dropped further to 80% at the end of November. Mercer’s analysis also shows that without a significant increase in high-quality corporate bond yields -- used by most companies to measure the value of plan liabilities -- the losses would have been worse.

News You Can Use: Oil companies post record profits, pensions in the red

From the "misplaced corporate priorities" files, energy companies -- led primarily by oil titans Exxon Mobil, Chevron and ConocoPhillips -- posted the lowest levels of pension plan funding across the 10 industries studied in a Citi analysis of S&P 500 companies.

Exxon Mobil, whose quarterly profits steadily break the company's own earnings records, had the highest pension deficit, with $27.8 billion in assets to cover $34.5 billion in liabilities, a $6.7 billion deficit.