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Milliman: Crisis Erases Pension Gains

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The ongoing financial crisis drove the 100 largest corporate pension plans to experience a record $300 billion loss of funded status in 2008.

Consultants at Milliman Inc., Seattle, Wash., conclude in the 9th Annual Milliman Pension Funding Study that the 2008 loss wiped out all gains from the preceding 5 years.

The consultants note that the financial crisis contributed to a decline in the percentage of plan assets invested in equities to 44% in 2008, from 55% in 2007. A changed in investment policies was a lesser factor in the shift away from equities, the consultants say.

The plans’ funded status fell to less than 80% at the end of 2008, down from about 106% at the end of 2007, the consultants write. This trend is continuing in 2009: by the end of February, the plans’ funded status had decreased by over $30 billion, to 74%, the lowest level since May 2003.

The losses will likely produce increased pension expenses for 2009 and a charge to corporate earnings of over $70 billion, the consultants predict. In 2008, in contrast, pension expense decreased to $10 billion — the lowest level since 2002.

The losses, plus new funding requirements under the Pension Protection Act, will also likely increase required employer contributions to over $50 billion for 2009, from about $30 billion in 2008, the consultants write.

Many companies are expected to defer some of the increased contribution requirement to 2010, the consultants add. This would increase contributions in that year to what may be record levels, the consultants predict.

In other findings: The aggregate pension deficit, or unfunded projected benefit obligation, increased by $320 billion during the 2008 fiscal years, reversing a $65 billion surplus at the end of 2007 and producing an aggregate pension shortfall of $255 billion as of the end of the companies’ 2008 fiscal year. As a group, the 100 companies had pension plan assets of more than $900 billion at the end of 2008.

The Milliman report details pension plan accounting information disclosed in annual report footnotes of the 100 largest corporate pension plan sponsors, by assets, for the 2008 fiscal year and previous years. The co-authors are John Ehrhardt of Milliman and Paul Morgan of Evaluation Associates, Norwalk, Conn., a Milliman affiliate.


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