Pension Plan Funding Status Tumbled in 2008, Watson Wyatt Analysis Finds
February 12 2009 - 1:01PM
PR Newswire (US)
Asset Drops Aggravated by Fourth-Quarter Plunge in Discount Rates
WASHINGTON, Feb. 12 /PRNewswire-FirstCall/ -- Pension plan funding
levels at large U.S. companies reached historically low levels at
the end of 2008 due to sharp declines in pension assets and
discount rates, according to an analysis by Watson Wyatt, a leading
global consulting firm. "Changes in funded status are wreaking
havoc with the projections companies have made," said Alan
Glickstein, senior retirement consultant at Watson Wyatt. "Large
and unexpected pension contributions will require companies to
divert funds they had earmarked for other business activities into
their pension plans precisely when they can least afford it." The
analysis looked at pension data for 450 Fortune 1000 companies and
projected their pension funding status for 2008.* The results
indicate that, on an aggregate level, funded status will decline an
average of 32 percentage points, from 106 percent in 2007 to 74
percent in 2008. This represents a total loss of $445 billion,
wiping out a 2007 surplus of $78 billion and leaving these
companies with a combined $366 billion deficit on their year-end
2008 financial statements. Pension funding levels are determined by
comparing the value of plan assets to liabilities. In 2008, plan
assets fell a total of 24 percent; since October this fall has been
compounded further by rising liabilities. For accounting purposes,
the present value of future payouts to retirees (plan liabilities)
is determined by using discount rates based on high-quality
corporate bond yields. When bond rates drop, liabilities go up and
pension funding levels go down. The analysis projects the
significant decline in corporate bond yields over November and
December 2008 increased liabilities in aggregate by $363 billion.
At the end of 2007, 46 percent of plan sponsors realized funding
levels between 90 and 110 percent, and only 5 percent had levels
between 50 and 70 percent. In contrast, Watson Wyatt estimates that
only 5 percent of plan sponsors will have funding levels between 90
and 110 percent at the end of 2008, and that funding for 61 percent
of sponsors will fall between 50 and 70 percent. "Plan sponsors are
feeling the effects of a pension funding crisis with both asset
values and interest rates dropping," said Jim Shaddy, North
American retirement practice leader for Watson Wyatt. "We urge
Congress to respond with the appropriate temporary relief for plan
sponsors." * Editor's note: The 450 companies analyzed represent
Fortune 1000 firms with December fiscal year-end dates for which
complete data was available. These figures are estimates; actual
year-end 2008 results will not be publicly available until spring
2009. For more information, read the Watson Wyatt Insider article:
http://www.watsonwyatt.com/us/pubs/insider/showarticle.asp?ArticleID=20471
Read about employers' increased contributions:
http://www.watsonwyatt.com/news/press.asp?ID=20380 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 7,700 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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