Human Resources: EFFECT OF PENSION REFORM ON RETIREMENT PLAN SPONSORSHIP UNCLEAR

WASHINGTON, May 10, 2007 – The effect of last year’s pension reform law on large companies’ sponsorship of defined benefit plans remains unclear, according to Watson Wyatt experts and a new analysis of FORTUNE 100 companies.

Fifty-eight companies in the FORTUNE 100 sponsor defined benefit plans, down from 90 in 1985. But the pace of change slowed somewhat last year, and the number of companies offering so-called hybrid pensions held almost constant, after declines earlier in the decade. Hybrid plans offer the security of traditional pensions, along with 401(k)-style features, such as account balances, that appeal to workers. The new rules under the Pension Protection Act of 2006 affirmed the legality of these plans.

“This year could be a turning point,” said Alan Glickstein, a senior retirement consultant at Watson Wyatt. “Companies are trying to understand the new landscape. But in the long run, the new rules will provide a more supportive environment that may encourage companies to keep their traditional plans or adopt hybrid plans.”

In its analysis of retirement programs at FORTUNE 100 companies, Watson Wyatt found that 58 offered a guaranteed pension to newly hired salaried workers, compared with 63 in 2005. Of the 58 pension plans, 31 were traditional defined benefit plans and 27 were hybrids, which include cash balance plans.

Retirement Plans at FORTUNE 100 Companies

Total Defined Benefit Plans
   Traditional Pension
   Hybrid DB Pension
Defined Contribution Only

1985
90
89
1
10

1998
90
67
23
10

2002
83
49
34
17

2004
74
40
34
26

2005
63
35
28
37

2006
58
31
27
42

“What happens with hybrids is pivotal,” said Kevin Wagner, a senior retirement consultant at Watson Wyatt. “Several large companies have already announced plans to switch to hybrid plans, and a number of firms are considering them.”

About Watson Wyatt Worldwide
Watson Wyatt (NYSE: 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 6,000 associates in 30 countries and is located on the Web at www.watsonwyatt.com.

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