WASHINGTON, April 28, 2006 - Watson Wyatt
Worldwide is warning that a new policy announced yesterday by the
Department of Energy (DOE) undermines government contractors´ ability to
provide guaranteed retirement benefits to their workers and conflicts with
long-standing public policy supporting employer-sponsored pension plans.
According to a press release published by DOE on April 27, the agency will
no longer reimburse the expenses associated with defined benefit pension
coverage "for new contractor employees." Secretary of Energy Samuel W.
Bodman announced the new policy to contractors to "ensure that future costs
for pension and medical benefits are more consistent with market trends."
"The fact that a government agency is forcing private employers to provide
only do-it-yourself, 401(k)-style plans is outrageous," said Sylvester J.
Schieber, director of U.S. benefits consulting at Watson Wyatt, a global
human capital consulting firm. "For decades, public policy has supported
the notion that the best way to ensure Americans´ retirement security is
through guaranteed pensions. We find it curious that a government agency
is threatening the retirement security of workers outside their department.
Meanwhile, U.S. government workers themselves retain a rich, secure pension
plan."
Permanent civilian employees hired by the DOE next year will be eligible to
participate in the Federal Employee Retirement System (FERS), a defined
benefit pension, which pays benefits to workers as early as age 50 in some
cases and to anyone with as little as five years of service at age 62. The
benefits provided by FERS are fully indexed to increases in the consumer
price index, something virtually unheard of among private pension plans.
The DOE press release also indicates that the motivation for adopting the
new policy is to "improve the predictability of contractor benefit costs
and mitigate the growth of the Department´s long term liabilities for these
costs." These are the very reasons that many private sector employers
moved to cash balance or other hybrid-style pension plans in past years.
But policymakers have blocked regulations for several years that would
clarify the legality of these plans and failed to pass legislation
clarifying the rules under which these plans might operate.
Watson Wyatt´s Schieber says, "For the past five years, we have been
begging for clarification of the rules so employers can provide a pension
benefit that is manageable and that is of tremendous value to most workers.
Now workers will be punished because their employers have not been able to
restructure their plans to be less volatile. The fact that a government
agency is punishing pension plan sponsors for a problem the government
largely created is adding insult to injury."
About Watson Wyatt Worldwide
Watson Wyatt (NYSE: WW) is a leading global human capital and financial
management consulting firm. The firm specializes in employee benefits,
investment consulting, human capital strategies, technology solutions,
investment consulting, and insurance and financial services. Watson Wyatt
has 6,000 associates in 30 countries and is located on the Web at
www.watsonwyatt.com.
Contact
Ed Emerman, 609/452-5967, eemerman[at]eaglepr.com
Emily Rieger, 703/258-7634, emily.rieger[at]watsonwyatt.com