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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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January 7, 2009 3:47 PM ET
(Pensions & Investments)—Defined benefit plans sponsored by S&P 1500 companies had a cumulative deficit of $409 billion as of Dec. 31, according to estimates by Mercer. The plans lost an estimated $469 billion for the year, having started 2008 with an aggregate surplus of $60 billion. Funded status for the plans in 2008 dropped to 75%, from 104% at the end of 2007, Mercer said. Mercer also estimated that the net pension expense for the combined S&P 1500 companies with a pension fund is likely to grow to $70 billion in 2009, from $10 billion in 2008, which could result in reduced 2009 earnings and corporate profitability. In a separate report today, BNY Mellon Asset Management said the funding ratio for the typical U.S. corporate pension plan fell more than 11 percentage points in December, which follows a 13-percentage-point drop in November. Liabilities rose 20.3% in December while corporate bond yields dropped by 125 basis points. The typical U.S. corporate plans’ funded status fell 31.5 percentage points in 2008, Peter Austin, executive director of BNY Mellon Pension Services, said in a news release. Adrian Hartshorn, principal in Mercer’s financial strategy group, said during a conference call with reporters that while funded status flirted around 75% in 2003, the $409 billion deficit is the largest Mercer has seen in the past decade and is most likely the largest since 1987. Since defined benefit plan asset values were much smaller at that time, deficits could not possibly reach the $409 billion level, he said. Mr. Hartshorn predicated that the companies would most likely “step back” in 2009 and re-examine their defined benefit plans, possibly leading to more companies freezing their DB plans, he said. BNY Mellon’s Mr. Austin said in his company’s release: “The damage inflicted in 2008, combined with continued volatility in the credit and equity markets, will require plan sponsors to carefully monitor their plans and consider various scenarios as they review their asset allocations and funding strategies. We are seeing plans take a variety of approaches to manage their risks in the current environment.” Mr. Hartshorn said 772 of the S&P 1500 companies reported defined benefit obligations in their SEC filings. Mercer included the companies’ U.S and non-U.S. defined benefit plans in their calculations.
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