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Dow Companies Are Holdouts on Pension Plans

Stocks in this article: GE XOM F

The report adds that defined-benefit plans, because they're professionally managed, achieve superior investment performance when stacked up against individual investors in 401(k) plans who are left on their own to decide how much to save, how to invest their funds and how to modify investments over time.

For the companies maintaining traditional plans, keeping them properly and legally funded is a challenge.

According to global consulting firm Mercer, the funded status of pension plans sponsored by S&P 1500 companies was 79% at the end of May, compared with 84% two months earlier. That equals an increase in aggregate pension deficits of $84 billion -- from $252 billion at the end of March to $336 billion at the end of May.

Any drop in funded status means that companies, to comply with federal standards, are on the hook for making up the difference and ensuring that retirees don't miss a payment.

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In 2003, General Motors had to float a $19 billion bond to keep its plan solvent. By the time it filed for bankruptcy last year, the pension shortfall was more than $20 billion.

In March, the Pension Benefit Guaranty Corp., the government agency that insures corporate pensions much the same way the FDIC protects bank accounts, took over a pension plan that covered 5,800 workers at a California plant that was a joint venture between GM and Toyota (TM). At the time of the takeover, the plan was only 55% funded.

The Pension Benefit Guaranty Corp., which receives no government funding, is itself running more than $22 billion in the red and could soon reach a $30 billion shortfall due to the ever-increasing number of orphaned and insolvent plans dropped at its doorstep. It expects to assume liabilities of as much as $86 billion by 2015.

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