Pension Woes Coming Home to Roost

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The problems in the multi-employer pension world are starting to cause big headaches for companies that contribute to these group retirement plans.

Rating agency Standard & Poor’s, on May 6, said it was placing the debt ratings for three big supermarket chains on credit watch because the multi-employer pensions they contribute to may be hard-up for cash this year, in wake of last year’s market rout. The three grocery chains that could see their ratings get hit in the coming months are: Safeway, State Bros. and Great Atlantic & Pacific Tea.

(Ok. Ok. Here’s the obligatory disclaimer: S&P just like BusinessWeek is part of McGraw Hill).

Late last year I wrote about the problems with multi-employer pensions, which account for nearly a quarter of the $2 trillion in private pension assets. These group pension plans have been slammed twice: once by the stock market rout and now the sharp recession that has forced many businesses that contribute to these plans to shut their doors. Whenever a contributing company goes out of business, the obligation for paying retirement benefits to its workers falls upon the other active companies that remain in the multi-employer plan.

In the coming years, some are starting to predict the federal government may have to bailout these multi-employer plans, which cover unionized workers in the manufacturing, automotive and food service industries. Or at a minimum provide aid to the plans to cover the cost of guaranteeing benefits for so-called “orphans,” retirees of defunct companies.

But in the short-term look for companies that belong to these plans to be coughing-up more money. And in tough economic times, some companies may be forced to trim their workforce to keep up with their annual pension contributions.

So cheer all you want for all those economic “green shoots” that policymakers keep saying are starting to sprout. But for many US businesses there are still lot of tough times ahead.

Updated 2:51 p.m.

Just got the latest numbers for the Automotive Industries Pension Fund, the ailing multi-employer plan featured in last year’s story, and they are pretty ugly. The pension’s trustees report that the value of the plan’s assets plunged 36% last year to $1 billion. The pension had outstanding liabilities of $2 billion at the beginning of 2008.

Of course, the big drop in asset value is understandable since the plan is 58% invested in stocks. But it’s probably too late for Automotive Industries to increase to a heavier bond allocation. The only hope it has of recouping its steep losses is to bank of an outsized stock market bounce in each of the next few years.

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