U.S. defined benefit pension plans lost a record $120 billion last month and are now underfunded, according to the actuarial and business consulting firm Milliman Inc.
"We've been issuing this index for eight years and have never seen a monthly asset loss so large," John Ehrhardt, a co-author of the Milliman 100 Pension Funding Index, said on Monday. The index covers 100 of the largest U.S. defined benefit pension plans.
After adjusting for liability gains, pension funds gave up $59 billion last month, shrinking pension funding to 92.7% of what's necessary, down 12 percentage points since Jan. 1. Assuming no return and stable discount rates for the rest of the year, funding adequacy is expected to fall to 91.3%, meaning pension funds would have a $93 billion deficit.
Pension underfunding is a concern for many companies because it can have a huge impact on their balance sheets and future income. The financial crisis has made it harder for employer-sponsored pension funds to meet government targets, and companies could be required to inject millions of dollars into pension plans at a time when profits and assets are lagging.
The federal pension law was updated in 2006, with tighter regulation and accounting requirements. Some companies have called for freezing or delaying the law's phase-in requirements, amid concern about meeting funding targets.