Pension bombs going off

Pension bombs going off
By: Paul Merrion March 02, 2009

Exploding pension fund shortfalls are blowing billion-dollar holes in the balance sheets of some of the Chicago area's biggest companies, forcing them to make huge contributions to retirement plans at a time when cash flow and credit are already under stress.

Boeing Co.'s shareholder equity is now $1.2 billion in the hole thanks to an $8.4-billion gap between its pension assets and the projected cost of its obligations for 2008. At the end of 2007, Boeing had a $4.7-billion pension surplus. If its investments don't turn around, the Chicago-based aerospace giant will have to quadruple annual contributions to its plan to about $2 billion by 2011.

Stock market losses also pounded pension funds at Abbott Laboratories Inc., Caterpillar Inc. and Exelon Corp., with others sure to emerge as companies file their annual financial reports with the Securities and Exchange Commission in coming weeks.

The pension gaps underscore a growing conundrum. Unfunded pension liabilities have to be subtracted from shareholder equity, weakening balance sheets at a time when it's already tough to borrow money. Barring a reprieve from Congress, companies may be forced to make more layoffs or curb capital investments to divert cash to shore up pensions.

"There are companies out there faced with paying their pension plan or staying in business," says Mark Ugoretz, president and CEO of the ERISA Industry Committee, a Washington, D.C., lobbying group. ERISA refers to the Employee Retirement Income Security Act of 1974, which sets standards to ensure pension plans are sufficiently funded.

The Chicago companies are symptomatic of nationwide woes. Last year, the 100 largest corporate pension funds in the U.S. saw their net assets decline by 21%, while liabilities increased 1.2%. Applying those averages to any of the region's top funds puts almost all of them into the red by at least $1 billion.

http://www.chicagobusiness.com/cgi-bin/article.pl?articleId=31402

We have credit default swaps and commercial real estate chickens coming home to roost this year. Pension problems will be put off as long as they can, I figure by 2011 that problem will come to a head.

couldn't cause a problem for any body or any corporate fund, could it?

spendthrift budget laden with 40 years of liberal claptrap. :P

yeah right. not. retirees are in serious trouble.

Naw, just couldn't be that bad. If it were, then all the good money would have already left the country. Naw.

If Da Nile is really just a river in Egypt, then I'd just want to go on a boat ride.

in the 1990s.

It had a budget crunch, however its pension was performing great because of the stock market in the mid-90s. The response was to point out that its pension program was *over*-funded. To save money they stopped putting more money into the pension.

With the NASDAQ crash in 2000 and the stock market problems in 2000-01, that probably stopped being the case. But I'm sure that either they returned to not adding funds to the pension pool in 2004-2007 or they really wanted to.

It had little to do with CDOs. The stock market drops 50% and even people playing the stock market conservatively (which means, in a strongly bear market, not conservatively at all) lose a bundle. "People" includes pension funds and insurance companies.

When people glory in how the stock market downturn's hurt the rich they forget a few things. First, that pensions depend on stocks. Second, that insurance companies often depend on stocks for return--we can probably expect malpractice rates to soar, as well as other kinds of insurance rates. Third, that wealth (as opposed to income) determines, to a fair extent, spending--you have $1 million in the bank and you feel less of a need to bank your earnings and more able to pay down new debt. Fourth, those assets are what was loaned to start-up companies and those seeking to expand--you know, the jobs that tend to be created for the long term? Fifth, those numbers we hear about how the top 1% of households have 90% of the assets--forget them for use in boilerplate rhetoric, those assets have suddenly become less valuable.

They owed that money to the teachers. They're in default. Demand it.

The stock market fall does have roots in CDO/CDS et. al. People are not reveling in rich people falling, that's just a classic strawman.

1. Pensions depend on stocks, yes, PLUS bonds, and even commodities such as gold. Not just stocks. They should be fine if diversified.

2. Insurance companies need liquidity, not "return" dividends.

3. Yeah. Feeling of security also adds to willingness to spend.

4. Huh?

Still, the retirement accounts are suspect now. The CDbombs are inside retirement accounts all over the country.

payment holiday. this is going to cause problems in the near future and is a very short sighted remedy. our state pension fund was looted by christie w. that money was promised to be returned but we won't see it. our pension took a hit in the market, even worse our pension fund gave lehman's $ to prop it up-alot of nj residents were employed there. our pensions are hurting and nobody is talking about it. we just found out that we have to take 14 furlough days-no pay that is like a paycheck and a half we'll be losing out on. nj is in troubles and the state workers are just starting to feel the brunt of it. but, at least i have a job and a paycheck to look forward to. i'll have to buckle down.