Potentially, one of the most important short-term consequences of the stock market collapse is the impact on employer pension funds. On Wednesday, January 7, 2009 we were informed that pension funds in the U.S. are underfunded by about $400 million (according to a report by released by the Mercer consulting firm). Since this does not absolve companies of their pension obligations (and there are federal laws that require companies to boost pension fund contributions in the short run), corporate profits and divident payouts are likely to decrease. Many companies' credit ratings could also suffer as a result, leading to higher borrowing costs, lower business investment, and a slower pace of productivity growth.
Longer term, this development could lead to major changes in the US private sector pension system. Increasingly, the burden may fall to tax payers to cover shortfalls in pensions. In principle, private pension funds are insured through the federally chartered Pension benefit Guaranty Corporation. However, if the demands on this agency become too much, it may have to be bailed out. The result could be major changes in the way people save for retirement.
See "Stock Losses Leave Pensions Underfunded by $400 Billion," The Washington Post, January 7, 2008. http://www.washingtonpost.com/wp-dyn/content/article/2009/01/07/AR2009010701387.html
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