U.S. Employers Face More Than $108 Billion Pension Funding Tab in 2009, Watson Wyatt Analysis Finds
January 13 2009 - 1:47PM
PR Newswire (US)
WASHINGTON, Jan. 13 /PRNewswire-FirstCall/ -- U.S. employers will
be required to contribute more than $108 billion into their defined
benefit plans this year, according to an analysis by Watson Wyatt,
a leading global consulting firm. Although that's roughly $16
billion less than employers would have had to contribute without
the passage of a new pension funding relief law late last year,
Watson Wyatt pension experts say employers will still need
additional relief. "This new law is a positive first step," said
Alan Glickstein, a senior retirement consultant with Watson Wyatt.
"However, we urge lawmakers to pass additional temporary funding
relief as companies transition to new, more restrictive funding
requirements while battling declining pension asset values and a
weakened economy." Watson Wyatt estimates that even with the
enactment of the Worker, Retiree and Employer Recovery Act of 2008,
both the required contribution levels in 2009 ($108.7 billion) and
2010 ($102.8 billion) will mark a significant jump from 2008 ($38
billion). Additionally, some employers that fail to meet the
minimum 80 percent funded threshold may contribute an additional
$3.2 billion. Otherwise, the payment of lump-sum benefits would be
restricted under the Pension Protection Act (PPA). Projected impact
on contributions with and without the Recovery Act: Plan year
Average Contributions Extra Regulatory ($ billions) contributions
funded status to avoid (%) benefits restrictions ($ billions)
Previous 2009 75.1 125.1 3.2 2010 80.1 117.6 5.1 Recovery Act 2009
75.1 108.7 3.2 2010 80.5 102.8 4.7 While the Recovery Act will
provide some relief, given the magnitude of declines in pension
assets and funded status, companies will still struggle to meet the
large and unexpected contributions required in the next two years.
The current situation could be greatly improved by combining the
provisions in the Recovery Act with those in two other major relief
proposals: one that widens the asset value corridor to 80 to 120
percent of market value in 2009 and 2010 (from the current 90 to
110 percent) for plans using averaged or smoothed valuation
methods; and one that permits a free election of either smoothing
or a full mark-to-market valuation approach in 2009. Both of these
proposals will be put before Congress as it reconvenes this month
and are strongly supported by various associations representing
employers and funds nationwide. According to the Watson Wyatt
analysis, each proposal independently would provide modest relief.
Combining both with the Recovery Act would generate more
significant improvement in plan funded status and reduction in
required contributions. Plans would likely move to full smoothing
valuation methods for both assets and liabilities. The most
substantial relief is provided by a combination of proposals:
Proposal Plan year Average Contributions Extra regulatory ($
billions) contributions funded status ($ billions) (%) Proposed
combination 2009 87.3 65.7 2.3 2010 85.5 84.4 2.2 "PPA will
eventually lead to better and smoother funding," said Mark
Warshawsky, director of retirement research at Watson Wyatt. "But
its implementation could not have happened at a worse time. Now, as
contributions jump, employers may be forced to make tough choices
to cut costs. We hope that with more temporary funding assistance,
employers will still be able to provide defined benefits plans and
their employees will continue to enjoy retirement security." For
more information read the Watson Wyatt Insider article:
http://www.watsonwyatt.com/us/pubs/insider/showarticle.asp?ArticleID=20284
For more information about the Worker, Retiree and Employer
Recovery Act, visit:
http://www.watsonwyatt.com/news/globalnews2.asp?ID=20292&nm=United%20States
About Watson Wyatt Watson Wyatt (NYSE:WWNASDAQ:WW) is the trusted
business partner to the world's leading organizations on people and
financial issues. The firm's global services include: managing the
cost and effectiveness of employee benefit programs; developing
attraction, retention and reward strategies; advising pension plan
sponsors and other institutions on optimal investment strategies;
providing strategic and financial advice to insurance and financial
services companies; and delivering related technology, outsourcing
and data services. Watson Wyatt has 7,600 associates in 32
countries and is located on the Web at http://www.watsonwyatt.com/.
DATASOURCE: Watson Wyatt CONTACT: Ed Emerman for Watson Wyatt,
+1-609-275-5162, , or Steve Arnoff of Watson Wyatt,
+1-703-258-7634, Web Site: http://www.watsonwyatt.com/
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