Corporate pension funds have taken a beating, and investors may get bruised. Stock losses and low interest rates have erased much of the...

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Corporate pension funds have taken a beating, and investors may get bruised. Stock losses and low interest rates have erased much of the progress pensions made in recent years to fund their obligations.

Pensions of companies in the Standard & Poor’s 500 index are now underfunded by about $110 billion, Credit Suisse estimates, after being overfunded by $60 billion at the end of 2007.

This imbalance doesn’t just affect the companies’ workers; it also can hurt shareholders, as the firms scramble to shore up funding, says Credit Suisse analyst David Zion.

“Capital that could have been used to reinvest in or grow the business, pay a dividend, buy back stock, service debt [or] stuff under the mattress might instead have to get dropped back in the pension plan,” Zion says.

The stock market is the main reason pensions are hurting — many invest heavily in stocks. Before the recent rally, all three major stock indexes were about 20 percent below their previous peaks.

Pension funds also have been hurt by falling interest rates. The Federal Reserve has cut interest rates seven times since September. Lower rates raise the present value of a pension plan’s liabilities, as the plans must assume a lower return on their bond investments.

This year’s second quarter of 2008 was not as bad as the first. The typical U.S. corporate pension fund ended the quarter with a funding ratio of about 93 percent, after beginning the quarter at 90. The figure began 2008 at 101. Funding ratio measures the ability to meet future payout obligations.