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RiskMetrics Group Publishes Pension Report Assessing Impact of New Legislation and Discount Rate Decline on Plan HealthSubmitted by: Dan Mahoney, Senior Analyst for Financial Research and Analysis

Pension plans were under a tremendous amount of stress in 2008, which may create additional risks to the already stressed income statements, balance sheets, and cash flows of corporations.

This report reflects certain key changes related to pension plans that will impact reported results in fiscal 2009: (1) a sharp decline in equity markets in 2008; (2) a sharp decline in bond yields experienced in December 2008, which eliminates the beneficial impact on benefit obligations of higher discount rates that was seen through much of 2008; and (3) the passage of the Worker, Retiree, and Employer Recovery Act (?WRERA?) in December 2008, which impacts pension funding requirements.

Reflecting these three key events, we estimate the funded status of plans, the corresponding cash funding requirements, and the overall impact of pension plans on companies? financial health. We conclude that the deterioration in plan assets from declining equity markets and higher bond yields results in significantly lower plan funding on financial statements and appears to offset any relief plans may have received from passage of the WRERA.

To access the key takeaways from this report, please visit here.

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on February 11, 2009 (boomark / email).