Private DB Plans at Sea — Recovering from the 2008 Dive

January 1, 2009 — For the last few years, private defined benefit (DB) plans have been enjoying high equity returns, cruising leisurely in calm market waters. According to Mercer, a human resource consulting firm, DB plans of S&P 500 companies experienced asset returns of 13.3% in 2006 and 9.6% in 2007, propelling these plans’ median funded status to 100% in 2006 and 106% in 2007. However, with the 2008 market downturn in equities and alternative investments, DB plans are now anchored solely by traditional fixed income. In these stormy waters, the median funded status of DB plans in S&P 1500 has dropped by almost 25%, from 101% on January 1, 2008 to 78% on October 24, 2008, and pension giants such as Lockheed Martin and CalPERS are reporting year-to-date returns of -20% to -25% as of October 30.