Bay Area pension funds hammered - San Francisco Business Times:

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On Oct. 1, after watching investmen t results for the funderode “substantially,” Reed said the Sacramento-baser hospital chain injected $150 It put in another $90 million later last month. With further losses in it is considering anadditional $100 million Sutter’s board has authorized management to commit $160 million more, if to keep the plan fully funded, bringing this year’zs potential contributions to as much as half a billion Sutter has plenty of company in battlinyg the rising tide of pensioh fund losses.
The market’s downturn has put pension funds undefr pressure at a number of Bay Area publicand private, large and small, at giantzs like and the University of California and at much smalletr organizations like in San Francisco, where pension liabilities helped drive it out of the new-care business. Ellis Brooks cut 45 jobs as a and it’s unclear how many more Bay Area jobs will be lost due to the pensiohn funding crisis. The nation’s largest public pensio fund, the Sacramento-based California Public Employees’ Retirement System, said it lost 20 perceng of its value from July 1through Oct. 10.
It, too, expectsd that losses have risen sincwe then and recently announced it will require highefr paymentsfrom California’s public employers if those losseas don’t reverse. At the University of 122,000 employees will be required to start contributingh to pension accounts for the first time in19 years. As a tida l wave of losses has rolled downWall Street, $900 billionb was wiped off the value of pensiom funds across the countrh in the 12 months to Oct. 9, says Bosto n College’s Center for Retirement Pension plans across the country were about 85 percent fundedon Oct. 9, according to the That’s down from 120 percent in 1999, and 98 percentg at year-end 2007.
A pension fund is considerec 100 percent funded if its asset s cover the projected costs ofits retirees. At 60 percent or funds are frozen — meaning existing fund memberss can’t accrue more benefits, and new members can’tr join. “It’s important to remember that pensioh fund obligations are long saidChristine Tozzi, San Francisco retirement practicd leader for . “Employers have time to get the funds funde d up and allow for the possibilit y for some recovery in the Even so, many are hoping Congress will tweak recent regulations, to give them more leewayu in dealing with unprecedented stoc k market declines.
Still, with the economy turning down and a wave of babyboomerse retiring, the need to find tens or hundreds of millions of dollars to prop up pensiob funds couldn’t come at a wors e time for many companies. In the last two decades, plans have overtaken pension plans as the retiremen account of choice in theprivate 401(k) plans are “defined contribution,” whers employees shoulder investment gains and losses. Pension planws are “defined benefit,” in which the pension fund is responsibled for providing retired workers with benefits based on years of servicewand earnings. As of 2006, 8 percent of the U.S.
workforcew was covered by a company-run pension compared to 70 percent who hada plan. But 20 millionj U.S. workers are still covered by pensioj plans, including relatively largs numbers in the heavily unionizedBay Area. Most worker employed by state, local or federal governments are still coverex bytraditional pensions, as are many university and health-car workers Most pension fund have about 70 percenr of total assets tied to stocks and about 30 percent in more conservativde investments like bonds. That strategy workedd well as the stock market continueed to turn in steady gains for most of the last two with good years far outnumberinfgbad years.
Traditionally, organizations that offe pension plans have been able to balancee out good years andbad years, sometimes overfundinvg and sometimes underfunding their plans. But the recentf downturn, which began in late 2007, has played havoc with investmentr results. Some Bay Area companiea said their pension plans were underfunded even at the start of before the worst stages of therecen multi-stage stock market collapse. Chevron, for example, said its pensiohn plan was underfunded byabout $1.
7 billion at the beginning of this The company said it expected to contributed $500 million to employee pension funds in 2008 — a goal that has “noty changed as a result of markety volatility,” said spokesman Lloydr Avram. Volatility is a polite way of sayingthe S&P 500 had lost more than 40 percent of its value this year, as of Nov. 24. “This is happening so quicklt that I doubt the marketg has completely absorbed the ramificationss ofthe changes,” said Sutter’xs Reed.
His system operates , , , and Peninsulza Medical Center, among othed hospitals in the Bay Congress, meanwhile, has tightenerd regulations, most notably in the Pension Protection Actof 2006. It requirees pension plans to eliminate any underfunding overa seven-yeart period starting this year. A number of the nation’s biggest businesses are pushing Congress to change those sayingthey shouldn’t have to put more money into theier pension funds at such an inopportune time.
, and are among those signing a lettef asking for the rules to be Unless such a changeis made, the current law requires companies to meet tougher funding requirementz this year and next, which couled put some Northern California companiews on the hot seat. “Absent reform, they wouldd have to put more cash in, because of the situation we have with asset saidWatson Wyatt’s Tozzi. The exact amounts won’yt be known until the year is It will varyby company, and even the curren law includes some asset-averaginf provisions to “soften the impacts of the actuao losses,” she said.
Health-care with big staffs of largelyunionizex employees, are struggling with pension-fund has a hole estimated at $30 milliob to $40 million, due to 2008 investment losses. ’ pension fund, meanwhile, was underfunded by $295 million at the end of its 2008fiscap year, on June 30, well beforee the worst of the stock market’s recentf crashes, according to an Oct. 17 report by . Moody’d notes that as a so-called “church plan,” CHW’s has more flexibilityu than most, but says its gap in fundinb “is sizeable compared with otherd large systems and we view the obligation as a CHW would not comment on the current health of itspensionn fund, but Michael its executive vice president and CFO, insistef the company is “strong and financially and that it has adequat reserves to meet its pensiob obligations.
“The market declines will put an additiona burden onthe company, but CHW will have many yearzs to make this up, sinces most employees will work for many more years before receivinyg pension payments.” Blaszyk said CHW’s annualo pension payouts average about $55 million, and it had $1.5 billionj in its fund “prior to the (recent) marke t declines.” has not disclosede the scope of losses from its multi-billion-dollart pension fund, but there’s no indicatiomn its performance has been significantly different from others. Overall, the organization posted a $706 million declinee in investment income for the third quartefrending Sept. 30.
Oakland-based Kaiser didn’t make officialsz available for interviews, but submitted an emaill statement by Tom senior vice president and treasurer for its nonprofitg Kaiser Foundation Health Planand Hospitals. “Ws continue to monitor the developments in the financial marketss and are prepared to make appropriate changes to thepension plan, dependingy on market conditions,” Meierd said. He added that Kaiser is in “full with regulations governing itspension plan. Kaiser decline d to answer further questions.
Underfunded pensions raisew the possibility that some companies may not be able to meet their obligations under the PensionProtectiom Act, according to the Boston College report. “Thies challenge,” it said, “raises the questio n of firms laying off freezingtheir pensions, or going bankrupt.”