Looming Crisis: Unfunded Pensions Next in Line for a Bailout?

With the bailout tally rising to incredible heights, the stock market in tatters, housing still moribund and consumers going into "bunker" mode the U.S. economy looks about as bad as most Americans can imagine.

But as bad as things look today an even bigger potential disaster looms: Pension funds.

American workers have been promised benefits from companies, state and local government, as well as the Federal government that are insufficiently funded — meaning the benefits may not be available for retirees, says Diane Garnick, investment strategist at Invesco, one of the world's largest pension fund advisers.

Setting aside the huge issue of unfunded Social Security mandates, nearly 75% of S&P 500 companies still have pension fund obligations. As the market has tumbled this year, so have the value of their assets — by $1 trillion, according to the American Benefits Council.

This isn't just an issue hobbling automakers or steel companies or airlines, and its potential economic impact "scares the heck out" of Garnick.

This week, over 300 companies, including Boeing, Verizon and Kraft Foods, lobbied Congress for relief from the 2006 Pension Benefit Guaranty Act, which required firms to put assets into unfunded pensions. Fulfilling those obligations takes capital that's needed to fund ongoing operations, and either hire new employees or prevent firings of existing workers, say the companies.

As the bailout bonanza rolls on, don't be surprised if the government's Pension Benefit Guaranty Corp. doesn't turn out to be the pension guarantor of last resort.

While it's impossible to quantify how much a bailout of the pension funds would cost, it's very likely "above and beyond" the $3.5 trillion bailout tally so far, Garnick says.