Pension Funds A Worry With Down Market
While the big story today is declining commodities and the global slowdown, there's some trader talk about the future impact that the lower stock market will have on funding obligations of corporate defined benefit plans--traditional pension funds.
Corporations are required to fund these pension funds at certain levels, and a lower market may require them to put up more money to cover any shortfall between what is paid out and what is taken in.
According to the Center for Retirement Research at Boston College, pension funds had a funding ratio of 90 percent prior to the crisis, meaning corporations were funding 90 percent of their obligations.
Today, the funding ratio is a more precarious 72 percent, so it is likely that many corporations will require higher contributions next year.
Two items here:
1) Lockheedlowered its 2009 guidance, partly on higher pension expenses next year;
2) The California Public Employees' Retirement System, the nation's largest public pension fund, said a decline of more than 20% in its assets since June 30 may require increased contributions to its fund, starting in July 2010 and July 2011.
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