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S&P 500 pension funds could see record underfunding

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Analysts at Standard and Poor’s are expecting S&P 500 pension funds to report broad losses in their $1.5 trillion portfolio for 2008, and to potentially post record-setting underfunding.

S&P 500 defined benefit plans as a group was overfunded by $63.4 billion in 2007, according to Standard & Poor’s Index Services; 2008 year-to-date equity declines were approximately 41 percent for the S&P 500 and 44 percent for the S&P Global Broad Market Index. These declines are expected to “drastically” reduce the equity value for U.S. plans (approximately $780 billion) and non U.S. plans (approximately $140 billion).

“Massive losses in the equity markets will require companies to either sell assets at their depressed levels, or shore up assets with significant cash infusions,” says Howard Silverblatt, Senior Index Analyst at Standard & Poor’s and research author.

According to Standard and Poor’s, while assets will decline, discounted pension liabilities are expected to fall slightly due to the higher discount rate used in their computation. The result is that pension funds will be underfunded on an aggregate basis by $257 billion (17.9%), surpassing the record $219 billion under funding in 2002.


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