With the stock market falling off a cliff in January, 100 of the biggest U.S. companies saw their defined-benefit pension plans lose more than a full year of 2007 gains in January 2008 alone, according to an annual pension study done by Milliman, a pension actuarial firm. But costs related to the shockwave, if they have an effect at all, won’t hit corporate balance sheets until the end of the year, an actuary suggests.

As of December 31, 2007, the pension plans studied parlayed a year of rising assets and increased discounts on their liabilities into a net surplus of $61 billion, according to John Ehrhardt, a principal and consulting actuary with Milliman. Hit by falling interest rates as well as plummeting shares, the plans saw their funded status plunge by $63 billion in the first month of this year.

The $63 billion drop in funded status stemmed from a $52 billion asset loss largely driven by falling stock prices plus an $11 billion rise in liabilities that resulted from a drop in the rates at which future pension liabilities are discounted. Those rate decreases were driven by falling interest rates, Ehrhardt told CFO.com.

The remainder of the first quarter was milder for the plans, which saw a $3 billion dip in funded status for February and a $4 billion uptick in March, the actuary said. A $11 billion decrease in liabilities was outstripped by a $14 billion drop in assets in February, while a $16 billion drop in liabilities beat out a $12 billion asset loss in March.

Overall, the funded status of the plans —plan assets minus plan liabilities—was a tad below 100 percent at the end of the first quarter, in contrast to the 105 percent funded status they enjoyed for the whole of 2007, according to the study. Milliman looked at the 100 companies with the biggest traditional-pension-plan assets whose 2007 annual reports were released by March 15, 2008.

The 105 percent funded status of the plans in 2007 marked a gain from the previous year, when plans were only 99 percent funded. In stark contrast to what happened in first-quarter 2008, liabilities dropped while assets burgeoned. The 2007 liability decrease, from $1,249 billion to $1,243 billion, was spawned by increases in interest rates. While assets were expected to gain 8.3 percent, they actually rose 9.9 percent.

Companies with big pension plans enjoyed the income-statement effects of a hefty cut in plan costs last year. With whopping asset losses of 1999 through 2002 having mostly worked their way through the pension system, plan expenses dove $19 billion. That boosted the earnings of the companies studied by $8 billion.

Even if the first-quarter plunge in pension funding continues through 2008, corporations who report on calendar-year basis, at least, won’t feel the effect on their financials for some time. Indeed, Milliman expects pension expense to decline through the whole of this year.

That’s because the pension expense that’s charged to earnings is based on an expected return on assets estimated at the beginning of the fiscal year, Ehrhardt notes. In the case of this year, that’s before the effects of the disastrous first quarter began to be known. Actual deviations from the expected return on assets are posted as a gain or loss on the balance sheet at the end of the fiscal year. The increase or decrease in pension expense reflected on the income statement as part of earnings is often amortized over a number of years, the actuary says.

In terms of the market value of the plan assets of their pension plans, according to the study, the top five companies in 2007 were General Motors ($117 billion), IBM ($98 billion), AT&T ($71 billion), Ford ($68 billion), and General Electric ($67 billion). Rounding out the top ten were Boeing ($50 billion), Verizon ($43 billion), Exxon Mobil ($28 billion), Lockheed Martin ($27 billion), and Northrup Grumman ($23 billion).

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