Could 20 % of the S&P 500 Go Bankrupt?

I was just talking with a confrere about the unfunded pension liability of those S&P 500 members that have Defined Benefit pension plans.
(I seem to recall it's about 35% of 'em)
The problem is, for the equity portion of the plans, the fact is they tend to invest in the S&P 500.
This could create a feedback loop (it's a positive feedback even though the results are negative) where falling values push companies over the edge.
In late December S&P gave us this heads-up, via Reuters:

S&P 500 Pensions Expected to Report Broad Losses for 2008; Stage is Set for 
Record Underfunding
..."Massive losses in the equity markets will require companies to either sell
assets at their depressed levels, or shore up assets with significant cash
infusions," says Howard Silverblatt, Senior Index Analyst at Standard & Poor's...
and the author of the research.

...While assets will decline, Standard & Poor's Index Services also expects
discounted pension liabilities to fall slightly due to the higher discount
rate used in their computation. The result is that pension funds will be
underfunded on an aggregate basis by $257 billion (17.9%), easily surpassing
the record $219 billion under funding set in 2002....MORE 

From BusinessWeek, Jan 13:
Company Pensions Need $109 billion in Cash

The bad news just keeps getting worse for companies that offer workers a traditional pension plan.

According to pension experts at consulting firm Watson Wyatt, companies with defined benefit pensions are going to have to come up with $109 billion in cash to shore up their pension plans this year. And another $103 billion next year. That’s up from $38 billion in 2007.

Plans with assets worth less than 80% of their liabilities (and there will be plenty of them) will be hit with an additional $3.2 billion in penalties....MORE

Since that article, the S&P 500 has dropped another 19%, a tough couple months.
From Pensions&Investments, last Friday:
GE dividend cut said to be tied to benefit underfunding

General Electric Co., Fairfield, Conn., today announced it will cut its dividend to 10 cents per share, from 31 cents, in the second half of 2009 to “preserve approximately $9 billion” on an annual basis — a move analysts linked to the company’s underfunded post-retirement obligations....MORE

From today's Chicago Business:
Pension bombs going off

Exploding pension fund shortfalls are blowing billion-dollar holes in the balance sheets of some of the Chicago area's biggest companies, forcing them to make huge contributions to retirement plans at a time when cash flow and credit are already under stress.

Boeing Co.'s shareholder equity is now $1.2 billion in the hole thanks to an $8.4-billion gap between its pension assets and the projected cost of its obligations for 2008. At the end of 2007, Boeing had a $4.7-billion pension surplus. If its investments don't turn around, the Chicago-based aerospace giant will have to quadruple annual contributions to its plan to about $2 billion by 2011.

Stock market losses also pounded pension funds at Abbott Laboratories Inc., Caterpillar Inc. and Exelon Corp., with others sure to emerge as companies file their annual financial reports with the Securities and Exchange Commission in coming weeks.

The pension gaps underscore a growing conundrum. Unfunded pension liabilities have to be subtracted from shareholder equity, weakening balance sheets at a time when it's already tough to borrow money. Barring a reprieve from Congress, companies may be forced to make more layoffs or curb capital investments to divert cash to shore up pensions.

"There are companies out there faced with paying their pension plan or staying in business," says Mark Ugoretz, president and CEO of the ERISA Industry Committee, a Washington, D.C., lobbying group. ERISA refers to the Employee Retirement Income Security Act of 1974, which sets standards to ensure pension plans are sufficiently funded....MORE

Oh well, for the employees there's always the Pension Benefit Guarantee Corp., right?

From our Feb. '08 post "Yikes! In Policy Shift, PBGC Turns to Stock Market":

From CFO.com:

The nation's pension insurer will shrink the portion of bonds in its portfolio to 45 percent from as much as 85 percent.

After five years of strictly matching its assets to its liabilities, the nation's defined-benefit pension insurer will stock its investment portfolio with a larger percentage of equities and a new host of "alternative investments," including real-estate and private-equity partnerships.

Under its new policy announced Tuesday, the Pension Benefit Guaranty Corporation "will allocate 45 percent of its assets to a diversified set of fixed-income investments, 45 percent to diversified equity investments and 10 percent to alternative investment classes," according to a press release. The PBGC has about $55 billion to invest under the new investment policy....