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Under Funded Pension Plans A Bone Of Contention For Companies, Employees and Retirees

Chaos in the world’s financial markets has wreaked havoc on corporate pension plans, with more people seeing their retirement savings slowly dwindle in value month after month. For retirees of bankrupt employers, the reality is especially grim.

David Jeanes, 60, is one of those individuals. Jeanes retired from Nortel Networks, North America’s biggest telephone equipment maker, in 2003 with a full pension benefit package. On Jan. 14, 2009, Nortel filed for bankruptcy protection. Now, Jeanes’ dreams of retirement, along with his pension plan, could be in jeopardy.

As reported March 25 in the Toronto Star, the future of corporate pension plans has become a huge question mark. With stock losses eating away at retirement earnings, many people who are close to retirement may either have to work longer than they initially planned or retire with far less income.

In less than six months, the amount of under funded pension plans in the United States has doubled to $373 billion. By law, when pension plans are under funded companies must infuse additional money into their plans each year to remedy the funding imbalance.

According to a March 23 article by Bloomberg, the decline in U.S. stock prices will saddle more than 50% of companies in the Standard & Poor’s 1500 Index with defined-benefit plans with about $70 billion in pension expenses this year.

Among the companies with ballooning pension deficits: Dow Chemical and Sears Holdings Corporation. Dow, whose pension plan was under funded by $4 billion at the end of 2008, anticipates doubling pension contributions to $376 million this year from $185 million in 2008.

Sears may need to nearly triple its pension contributions to $500 million in 2010.

Meanwhile, pension funds have become a hot issue in New Jersey, which recently sued former executives of Lehman Brothers over claims that fraud and misrepresentation caused the state’s public pension fund to suffer more than $118 million in losses.

According to a March 17 article in the New York Times, a “thirst for profit” and “simple greed” on the part of Lehman’s top executives, including former CEO Richard Fuld, were responsible for the investment firm misstating its financial position when New Jersey bought more than $180 million worth of Lehman shares in April and June 2008. 

The lawsuit also said that Lehman executives provided false and misleading statements about the firm’s liquidity, the value of its assets and its ability to hedge against risk.

This is the second lawsuit filed by a government entity that names former Lehman executives as defendants. In November 2008, San Mateo County, Calif., accused Fuld and other Lehman executives of making false statements that ultimately led to a $150 million loss in the county’s investment pool. 

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