Oct. 29 (Bloomberg) -- A trade group whose members include Lockheed Martin Corp., Dow Chemical Co. and General Motors Corp. is pressing Congress to help close a record $200 billion deficit in U.S. pensions created by this month's global stock-market collapse.

The Committee on Investment of Employee Benefit Assets is kicking off a lobbying effort today to delay provisions of the Pension Protection Act that it says will force companies to drain cash flow to comply with funding rules set to take effect next year.

``This will be real money that companies will have to come up with,'' said Judy Schub, managing director of the Bethesda, Maryland-based group, which represents 110 of the nation's largest retirement plans holding almost half of U.S. assets. ``The law will be forcing people to be taking money out of operations at the worst possible time.''

Aetna Inc., the third-largest U.S. health insurer, said today that pension expenses caused by stock market declines will lop 30 cents to 40 cents a share off next year's operating earnings.

Ryder System Inc.'s pension contributions will ``significantly increase in 2009'' and force ``cost management'' to protect profit, Chief Executive Officer Gregory Swienton told a conference call Oct. 22. The Miami-based, truck-leasing company's plan had $1.5 billion in assets in 2007 and was underfunded by $1 million, according to Standard & Poor's Corp.

Pension obligations at Lockheed, the world's biggest defense contractor, would also deplete cash and hurt earnings, Chief Financial Officer Bruce Tanner said last week. Lockheed, Bethesda, Maryland-based maker of F-22 Raptor stealth fighter jets, said on Oct. 21 that 2009 profit will be shaved by about 30 cents a share as it records a $60 million expense next year, compared with the projected $125 million gain on its pension this year.

Better Uses for Cash

Even companies that aren't necessarily anticipating an impact on earnings are suggesting better uses for the cash.

``While we support the Pension Protection Act and improved funding for corporate pension plans, we are very concerned about the immediate impact to the overall economy if massive cash contributions are required due to the recent stock market declines,'' FedEx Corp. CFO Alan B. Graf Jr. said yesterday. ``In the current liquidity crisis, that money would be better used to support immediate working capital needs, make capital investments and protect American jobs.''

The value of so-called defined benefit plans fell to $1.1 trillion by Oct. 24 from $1.3 trillion at the end of September, according to Mercer, a pension consulting unit of Marsh & McLennan Cos., as the Standard & Poor's 500 index declined 36 percent this year. The $200 billion gap between U.S. retirement plan assets and liabilities indicates that pensions are about 85 percent funded, said Adrian Hartshorn, who advises corporate programs at New York-based Mercer.

94 Percent Funded

The Pension Protection Act of 2006 compels companies to cover 94 percent of retirement-plan liabilities to be considered fully funded in 2009. The legislation was passed after funding dropped following the technology sector collapse in 2001. Plans covered 104 percent of obligations and posted a $60 billion surplus at the end of 2007, Mercer said.

Companies must cut benefits if assets fall below 80 percent of liabilities and eliminate lump-sum payments below 60 percent, according to the law. At that level, companies must also freeze their plans and prevent participation by new hires.

The law ``was unnecessarily conservative in its funding requirements and unnecessarily punitive in cases where companies make an unwise decision relative to plan funding,'' said North Dakota Representative Earl Pomeroy, a member of the House Ways and Means Committee, which will hold hearings on pensions and economic-recovery plans today.

`Squeeze on Cash'

``Any stimulus package needs to address the pension issue,'' said Pomeroy, a Democrat and sponsor of legislation that would delay the pension act's ``draconian'' funding provisions. ``The squeeze on cash may not happen tomorrow, but I can assure Congress that if it fails to act, this will be upon us before we know it.''

The first deadline most companies will need to meet is Dec. 31, when they will have to calculate their funding ratio and develop budgets for contributions beginning in the second half of 2009.

``Companies will be facing quite significant cash calls in 2009 and 2010 and more than a few will find it difficult to meet these,'' Hartshorn said.

The impact of rising pension expense is making companies cut spending in areas including dividends, said Howard Silverblatt, an S&P analyst in New York. Dividends will fall 10 percent this quarter the worst year-over-year decline since 1958, he said.

``The cash-flow hit is killer,'' Silverblatt said. ``You look in your pocket and there is a hole all the way through to your socks.''

2008 Returns

Next year's pension costs will be determined by 2008 returns on plan assets and interest rate assumptions that won't be made until year-end, according to federal rules.

``Like every other defined-benefit plan, we'll have suffered losses in line with what the markets have done, and we'll have to see what happens,'' Burlington Northern Santa Fe Corp. CFO Thomas Hund said in an Oct. 23 call.

``We were fairly well funded, although not fully funded, prior to the disruption this year,'' said the second-biggest U.S. railroad's CFO. ``And so, there will be funding required if the assets don't return back to previous levels.''

The Dec. 31 deadline to set next year's plan contributions gives Congress, which returns from recess Nov. 17, less than six weeks to resolve the issue.

Push Off Rules

Congress should push off the 94 percent funding requirement and compel the Treasury Department to redefine how companies deal with market volatility as they calculate assets and liabilities, according to the Committee on Investment of Employee Benefit Assets. The American Benefits Council, another pension-plan trade group, asked for similar action last month.

Canadian companies are lobbying that country's federal Finance Department for temporary relief from their pension-fund obligations, including an extension of the time allowed to make up shortfalls, the Globe and Mail reported today.

About 59 percent of the 100 largest U.S. pension plans will fall short of the required 2009 funding level, even if stocks pared their decline to 13 percent, Pomeroy said.

Midland, Michigan-based Dow's pension funds were overfunded as of Sept. 30, CFO Geoffery Merszei said on the company's Oct. 23 earnings conference call. He didn't say how they'd been affected by the market decline since then.

It's ``too early'' to comment on 2009 pension expenses, he said. Dow is the largest U.S. chemical maker.

``Of course, we all know that the equity markets have suffered since the end of September,'' Merszei said. ``I don't know where we are right now, and I don't have the crystal ball to tell you what's going to happen by the end of this year.''

Raytheon Overfunding

Raytheon Co., the world's largest missile maker and fifth- largest U.S. defense contractor, predicts it will meet the new pension-funding levels.

Raytheon, based in Waltham, Massachusetts, contributed funds to its pension plan ``well in excess'' of requirements, spokesman Jon Kasle said in an e-mailed statement. In 2007, the company added $1.3 billion, of which $900 million was discretionary. This year, the company will add about $550 million, he said.

``Raytheon is focused on managing its pension plan to the guidelines of the Pension Protection Act with an objective to be fully funded well within its required timeframe for our company,'' Kasle said.

To contact the reporters on this story: Edmond Lococo in Boston at elococo@bloomberg.net; Pat Wechsler in New York at pwechsler@bloomberg.net.

Last Updated: October 29, 2008 11:18 EDT