Large Employers Slow Changes to Retirement Plans, Watson Wyatt Finds

WASHINGTON, D.C., May 22, 2008 — The pace of retirement plan changes among
FORTUNE 100 companies is stabilizing, and a majority still offer pension
plans to their new employees, according to an analysis by Watson Wyatt
Worldwide, a leading global consulting firm.

The analysis of retirement plan sponsorship among FORTUNE 100 companies
found that more than half — 54 firms — offer a defined benefit (DB) pension
plan to newly hired salaried workers. Following an 11 percent decline
between 2004 and 2005, the number of FORTUNE 100 companies sponsoring
pension plans decreased by 5 percent in 2006 and 4 percent in 2007. The
rate of change slowed after passage of the Pension Protection Act of 2006,
which established a more supportive environment for both traditional and
hybrid (e.g., cash balance) DB plans. But with proposed hybrid plan
regulations not final until 2009, it could take several years to see the
full effect of these encouraging developments for DB plans.

“Thanks in large part to the pension reform legislation, the peak rate of
replacing DB plans with defined contribution-only plans appears to be
behind us,” said Alan Glickstein, a senior retirement consultant at Watson
Wyatt. “In fact, as companies evaluate what the new rules mean for them, we
could very well see a renewed commitment to hybrid and other DB plans.”

Retirement Plans at FORTUNE 100 Companies

Type of Retirement Plan 1985 1998 2002 2004 2005 2006 2007
Defined Benefit 90 90 83 74 63 58 54
Traditional 89 68 49 40 34 30 28
Hybrid 1 22 34 34 29 28 26
Defined Contribution Only 10 10 17 26 37 42 46

Of the 54 DB pension plans sponsored by FORTUNE 100 companies, 28 are
traditional plans and 26 are hybrid plans. Most companies that sponsor a DB
plan also offer their new employees a defined contribution (DC) plan, and
46 firms have moved to a DC-only approach.

“Companies are seeking innovative ways to reduce the risks and costs
associated with their retirement plans while still providing attractive
benefits,” said Kevin Wagner, a senior retirement consultant at Watson
Wyatt. “For some employers, that will mean offering an enhanced DC-only
plan. Others, however, might opt for hybrids, given the combination of
reduced volatility for employers and secure, portable benefits for
employees.”

A separate Watson Wyatt study on the retirement plans of 300 large
companies found that more than a third of the plan sponsors that converted
their traditional DB plan to a hybrid plan did so to reduce cost or cost
volatility, and 38 percent were motivated by enhancing employee perception
and worker attraction and retention.

About Watson Wyatt

Watson Wyatt (NYSE, NASDAQ: 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 7,000 associates in 32
countries and is located on the Web at www.watsonwyatt.com.

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