For years, workers have seen their pension coverage at work get scaled back in favor of alternatives like 401(k) plans. But the final nail in the coffin for pensions may come from 2008's terrible stock market performance.

According to Barron's, a recent report from Credit Suisse asserts that more than 100 companies in the S&P 500 face pension shortfalls, which could result in a significant hit to their earnings during 2009. New pension funding requirements taking effect at the beginning of the year will require higher funding levels, even as pension funds' stock investments have lost a huge portion of their value.

Pension mechanics and you
For workers, one of the advantages of pension plans is your certainty about what you'll receive. Using whatever formula your employer uses, you can make assumptions about your future earnings and determine what your monthly payment should be. When the time comes to start getting payments, it's up to your pension plan to figure out how to come up with your money.

From the employer's perspective, obviously, operating a pension plan takes more work. With workers of all ages often included within a single plan, plan administrators must figure out how much they need to set aside and invest now to cover current and future pension liability.

With new tougher requirements for funding, many companies will need to make up shortfalls. To do so, the company must take charges on earnings -- something no one wants to do, and which companies like United Parcel Service (NYSE:UPS) and Pfizer (NYSE:PFE) are trying to fight by seeking government intervention.

The magnitude of those charges worries some investors. Consider some of the companies affected:


Estimated 2009 EPS Charge

Trailing-12- Month EPS

Northrup Grumman (NYSE:NOC)



Goodyear Tire (NYSE:GT)



PPG Industries (NYSE:PPG)



Source: Barron's, Yahoo! Finance.

Some of these charges look relatively small compared to a typical year's earnings. But coming on the heels of a slowing economy, which will already challenge year-over-year comparisons for many firms, the additional earnings hit from pension-related charges is the last thing anyone wants to deal with.

On the other hand, there are some relatively healthy pension plans out there. Somewhat surprisingly, General Motors (NYSE:GM) is among them; its estimated 96% funding level for its pension puts it above the threshold for immediate funding requirements. Despite facing an $11.7 billion deficit, ExxonMobil (NYSE:XOM) also has the cash on hand necessary to strengthen its plan to required levels.

The beginning of a trend?
Yet the hard times may not be over for pension funds. The credit crunch has pushed corporate bond interest rates upward, even as yields on safer Treasury bonds have fallen to historically low levels. Pension funds can use the higher corporate bond rates to more heavily discount the future value of the liabilities they owe to future pension recipients, thereby partly reducing the amount of assets needed to meet current funding requirements.

If an eventual resolution of the financial crisis brings the currently wide spreads between Treasuries and corporate bonds down to normal, then corporate bond rates could easily fall -- forcing up pension liabilities and requiring more funding. And if the stock market doesn't recover quickly enough, then pension funds -- which keep an estimated 60%-70% of their assets in stocks -- could once again head back to their corporate benefactors for more funding.

Whatever fallout results from pension funding difficulties will just put more pressure on the decreasing number of companies that offer pensions. More of them may shift investment risk away from pension plans, and toward workers through defined-contribution plans. As many workers have learned recently via their 401(k) plan accounts, bearing that investment risk isn't always the best deal for them.

Like it or not, though, when it comes to saving for retirement, employees are increasingly on their own.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.