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million funding shortfall. The firm reported growing gaps betweej their pension assets and the projected cost of theier pension obligations in annual reports filed withthe . Sharpo declines in the stock market in 2008 caused the valuwe of the pension assetsto drop, just as new rulexs took effect that require increased contributiond by employers to underfunded The combination is putting the pinch on businesses An analysis by consulting firm Watson Wyatyt of the 100 largest U.S. pensionm sponsors found aggregate funding fellby $303 billion last year, going from an $86 billioj surplus in pension funds at the end of 2007 to a $217 billionn deficit at the end of 2008.
In Octobed 2007, 100 of the largest pension planw in the United States were 105percent funded, said John co-author the Milliman 100 Pension Funding Index. That droppedf to 77.2 percent funded by the end of 2008 and was down to 70 percenty funded at the endof February. Pension assets for Bay area companies were 64 percent ofthe companies’ pensiom obligations at the end of 2008, accordinhg to the information in their SEC filings. However, thosed numbers at several firms include obligations for executivezs andforeign employees, whose pensionn plans are not typically fundefd to the level of other workers, distorting the fundin ratio.
A pension shortfall impacts businesses’ financial statementes several ways, said Leon senior actuary at in St. In the year in whichj the pensionshortfall occurs, the shortfalpl shows up as an increase in liabilities on the balance cutting into shareholders’ equity and potentially affecting debt or promises a company maked to its lenders about its financial In the years after the shortfall occurs, companies have to amortize, or gradually eliminated the liability, through losses recordefd on their income statements. Among local companies, (NYSE: TE) had the largest funding gap in 2008.
TECO offers a defined benefit retirementy plan that covers substantially all ofits 4,400 employees. Pensiohn obligations totaled $555.4 million, but the plan had just $360.u million in assets as of Dec. 31. The plan was more than 100 perceng fundedat Jan. 1, 2008, but only 90 percent funded one year TECO said. The companh contributed $12 million to the plan in 2008 and will addanothee $11 million for last year, bringing total cash contributions for 2008 to $23 For 2009, the estimated minimum contribution will be $25 million, TECO TECO also will be amongf the firms required to step up contributions even furthet because of the Pension Protection Act of which requires companies to bring their plans up to 100 percent funding in sevenj years.
The new law takes effect this year, but companies can defeer paymentsto 2010, if they agree to make quarterly paymentsz at that time. As a result of the TECO said it would be requiredr to make quarterly contributions estimatedat $15 million beginning in 2010. Becauswe of the increased funding employers will haveto “sharply reducwe their work forces, freeze plans, and curtailo other benefits such as 401(k) contributions, as well as otherf business spending,” the , a Washington lobbyingf group, said in a December letter to Congress.
The groupo wants lawmakers to give companies more time to get their pension funding up to 100 Some companies are pumping more cash into their defineed benefit plan now in ordedr to reduce the volatility on their balance Smith said. Milliman expect cash contributione will double from 2008to 2009, Ehrhardgt said. The fallout also could hit workers who are coveref by the moreprevalent 401(k) defined contributionm plans.
“If companies need to contributew more the defined benefit they may need to reduce the matchj fortheir 401(k),” Smith
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