NEW YORK (Reuters) - Company pensions that started the year off strong now face what could be their largest under-funding ever due to recent steep market losses, according to an analyst report from Standard & Poor's released on Wednesday.
Last year, S&P 500 companies had $63 billion in over-funding in their pension funds, a level not seen since 1995, and going into 2008 were estimating an 8 percent rate of return on their pension assets for the year.
But at current market returns, funds look like they are on their way to reporting their largest under-funding ever, Howard Silverblatt, senior index analyst at Standard & Poor's, wrote in a research note.
Silverblatt said funds could suffer an under-funding greater than the $219 billion in under-funding seen six years ago.
At the beginning of 2008 the companies had 61 percent of their money in equities, but since then, the U.S. market has fallen over a third, while some emerging markets are down over a half, Silverblatt wrote.
"While someone might be doing 8 percent, the reality is that any pension fund manager that is even breaking even this year is most likely demanding a bonus," Silverblatt said.
"When you calculate it all out at the current market returns, or even assuming a nice fourth-quarter rebound, you get a number that is worse than the $219 billion in under-funding reported in 2002, and that's starting from the positive 2007 $63 billion position."
The deficit will have to be dealt with through large, unplanned cash infusions, which will be difficult given tight liquidity in the market, Silverblatt wrote.
"Overall we expect few companies to remain over-funded and for the payments to add more pressure on companies to reduce the already dwindling number of defined pension programs out there," he said.
Silverblatt also noted that since 2002, accounting requirements have changed so that companies now have to include their funding status on their balance sheet, meaning equity will have to be marked down.
(Reporting by Leah Schnurr; Editing by Leslie Adler)
