Bay Area pension funds hammered - San Francisco Business Times:

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On Oct. 1, after watching investment resultsw for the funderode “substantially,” Reed said the Sacramento-based hospitap chain injected $150 million. It put in another $90 millio n later last month. With further losses in November, it is consideringt an additional $100 million Sutter’s board has authorized management tocommift $160 million more, if to keep the plan fully funded, bringiny this year’s potential contributions to as much as half a billio dollars. Sutter has plenty of company in battlinvg the rising tide of pensionfund losses.
The market’s downturj has put pension fundsx under pressure at a number of BayArea institutions, public and large and small, at giants like and the University of California and at much smaller organizationsw like in San where pension liabilities helped drive it out of the new-care business. Ellis Brooks cut 45 jobs as a result, and it’ws unclear how many more Bay Area jobs will be lost due to the pensionbfunding crisis. The nation’s largest public pensionm fund, the Sacramento-based California Public Employees’ Retirement System, said it lost 20 percent of its value from July 1through Oct. 10.
It, too, expectd that losses have risen since then and recently announced it will requiree higher paymentsfrom California’w public employers if those lossesx don’t reverse. At the University of California, 122,0009 employees will be required to start contributinh to pension accounts for the first time in 19 As a tidal wave of losses has rolle downWall Street, $900 billion was wiped off the valur of pension funds across the countr y in the 12 months to Oct. 9, says Bostobn College’s Center for Retirementt Research. Pension plans acrosds the country were about 85 percent fundeon Oct.
9, according to the That’s down from 120 percent in 1999, and 98 percent at year-endx 2007. A pension fund is considered 100 percent fundes if its assets cover the projected costs of its At 60 percentor below, funds are frozej — meaning existing fund members can’t accrus more benefits, and new members can’tg join. “It’s important to rememberf that pension fund obligations arelong term,” said Christind Tozzi, San Francisco retirement practice leaderf for . “Employers have time to get the funds funder up and allow for the possibility for some recoveryg inthe markets.
” Even so, many are hoping Congresse will tweak recent regulations, to give them more leewau in dealing with unprecedented stock market Still, with the economy turning down and a wave of baby boomersz retiring, the need to find tens or hundrede of millions of dollars to prop up pension fundz couldn’t come at a worse time for many companies. In the last two 401(k) plans have overtaken pension plans as the retiremen t account of choice in theprivatew sector. 401(k) plans are “definedr contribution,” where employees shoulder investment gainssand losses.
Pension plans are “defined benefit,” in which the pensiomn fund is responsible for providing retired workers with benefits baserd on years of servicesand earnings. As of 2006, 8 percent of the U.S. workforcer was covered by a company-run pension plan, compared to 70 percent who hada plan. But 20 million U.S. workers are stil l covered by pension plans, includinvg relatively large numbers in the heavily unionizedBay Area.
Most workerz employed by state, local or federao governments are still covered by traditional as are many universityand health-care workers Most pensiomn funds have about 70 percent of total assets tied to stockw and about 30 percent in more conservative investments like bonds. That strategyt worked well as the stock market continuedd to turn in steady gains for most of the last two with good years far outnumberingbad Traditionally, organizations that offer pension plans have been able to balancr out good years and bad years, sometimews overfunding and sometimes underfunding their plans. But the recenf downturn, which began in late has played havoc withinvestment results.
Some Bay Area companies said their pensionh plans were underfunded even at the startrof 2008, before the worst stages of the recentg multi-stage stock market collapse. Chevron, for said its pension plan was underfunded byabout $1.7 billiom at the beginning of this year. The company said it expectex tocontribute $500 million to employeed pension funds in 2008 a goal that has “not changed as a result of markeft volatility,” said spokesman Lloyd Avram. Volatility is a polite way of sayin gthe S&P 500 had lost more than 40 percentg of its value this year, as of Nov. 24.
“This is happeningb so quickly that I doubtf the market has completely absorbed the ramificationa ofthe changes,” said Sutter’s Reed. His system operates , , , and Peninsulw Medical Center, among other hospitald in the Bay Area. Congress, meanwhile, has tightened regulations, most notably in the Pensionh Protection Actof 2006. It requirez pension plans to eliminatw any underfunding overa seven-year period starting this A number of the nation’s biggest businesses are pushing Congresz to change those rules, sayinfg they shouldn’t have to put more monegy into their pension funds at such an inopportune , I.B.M.
, and are among those signinv a letter asking for the rules to be relaxed. Unless such a changer is made, the current law requires companiews to meet tougher fundinfg requirements this yearand next, whicu could put some Northern California companies on the hot seat. “Absenyt reform, they would have to put more cash in, becaused of the situation we have with asset saidWatson Wyatt’s Tozzi. The exact amountd won’t be known until the year is complete.
It will vary by and even the current law includessome asset-averagingh provisions to “soften the impactws of the actual losses,” she Health-care organizations, with big staffs of largely unionized are struggling with pension-fund losses. has a hole estimatex at $30 million to $40 million, due to 2008 investment ’s pension fund, meanwhile, was underfundedd by $295 million at the end of its 2008fiscalk year, on June 30, well before the worsg of the stock market’s recent crashes, according to an Oct. 17 reportf by .
Moody’s notes that as a so-calles “church plan,” CHW’s has more flexibility than most, but says its gap in fundinvg “is sizeable compared with other large systemss and we view the obligation asa risk.”