Many companies' pension plans are underfunded, leaving too many Americans staring down the barrel of a shakier retirement. According to the Milliman 100 Pension Funding Index, which tracks 100 of the country's biggest pension plans, the overall funding deficit grow by $49 billion in 2010. In the public sector, government pensions are underfunded by around $1 trillion. However, all these dark clouds have begun to reveal the glimmer of a silver lining.

Imperiled pensions have real consequences: In 2005, United Airlines defaulted on its pension obligation to its retirees, leaving many with a fraction of what they'd originally been promised. The Pension Benefit Guaranty Corporation does step in in such cases, offering a cushion, but for many workers, it won't be enough. The PBGC's benefits currently max out at $54,000 annually.

We're in this mess partly because many pension fund managers overestimated the returns they'd earn on the money they socked away for future payments. Thus, they saved and invested too little, leaving them with deficits now.

On the bright side…
Thankfully, the situation isn't all doom and gloom. The pension deficit actually shrunk by $44 billion in December, thanks in part to the stock market's recent growth. In the last quarter, an 11% increase in the S&P 500 helped prompt a 7% increase in the value of pension funds. Going by one recent estimate, corporate pension funds are almost 90% funded.

In addition, many companies are becoming more responsible with their pension investments:

  • AT&T (NYSE: T), for example, is lowering its expectations for its pension fund's growth rate, from a discount rate of 6.5% to a more realistic 5.8%. That's a good move, but it'll also require a $17 billion deduction from AT&T's retained earnings.
  • Motorola Solutions (NYSE: MSI) will be adding an extra $100 million to its pension fund over the next five years, per an agreement with the PBGC. Alcoa (NYSE: AA) is adding $900 million to its fund in 2011, while General Motors (NYSE: GM) has just added $6 billion.
  • Exelon (NYSE: EXC) is boosting its fundedness from 77% to 89% with a $2.1 billion infusion.

Smart investors looking for the best investments will want to keep an eye on this issue, since poor corporate planning for pensions can put a significant crimp in earnings. Planning and investing effectively for retirement is serious business -- for companies, employees, and investors alike.

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.