Pension Funds Had Banner Year, Watson Wyatt's Pension Risk Index Finds

WASHINGTON, December 13, 2007 – With pension funds making significant
gains, fewer large employers face high degrees of financial risk because of
pension liabilities, according to a Watson Wyatt analysis of FORTUNE 1000
companies that sponsored defined benefit pension plans in 2006. Despite
recent market volatility in asset values and discount rates, pension funds
are expected to again fare well when final 2007 numbers are known.

Watson Wyatt’s analysis found that pension plan liabilities posed
relatively high financial risk for only 8 percent of FORTUNE 1000 companies
with pension plans in 2006, down from 17 percent in 2003 — a decline of
about half over four years. Companies with moderate or high pension risk
may face financial challenges from their pension plan during poor market
conditions. About 29 percent of companies sponsoring pensions have a
moderate amount of risk, while the remaining 63 percent are exposed to
relatively low risk levels. The latter group includes some firms — 11
percent of FORTUNE 1000 companies that sponsor pensions — for which pension
plans pose no business risk, a percentage that has more than doubled since
2005.

“The financial position of pension plans has gradually improved over the
last several years, but employer-sponsored plans made great strides in
2006,” said Mark Warshawsky, director of retirement research at Watson
Wyatt. “Regaining full financial health should help alleviate sponsors’
concerns about pension deficits damaging their bottom line.”

The findings are based on Watson Wyatt’s Pension Risk Index (PRI), which
since 2003 has quantified the amount of financial risk a company’s pension
fund poses to its core business. The analysis measures the potential
dollar-value decline in a pension plan’s funded status (reflecting both
plan assets and liabilities) under an adverse financial market scenario.
The potential drop in funding is then compared with the sponsoring
company’s market value.

A separate Watson Wyatt analysis found that the aggregate funding level for
FORTUNE 1000 companies’ pension plans increased from 82 percent to 99
percent between 2002 and 2006, jumping 8 percent in the last year alone.
The improvement in 2006 was driven by positive market conditions, strong
management by plan sponsors, rising interest rates and substantial
contributions from employers.

Overall, lower pension risk among the FORTUNE 1000 is due to higher funding
levels, more pension surpluses and improved company performance, Watson
Wyatt experts say.

“Many plan sponsors are now better positioned for the future, and recent
movement in the discount rate is unlikely to change that,” said Carl Hess,
director of Watson Wyatt’s investment consulting in North America.
“However, such volatility underscores the need to effectively manage risk.

“Plan sponsors that adopt more sophisticated investment strategies, such as
liability-driven strategies, may find that these approaches can help lock
in current funding levels while achieving more predictable returns over the
long term.”

Liability-driven investment strategies use bond and derivative markets to
help firms better hedge against their long-term pension liabilities and
reduce the pension risk posed by large equity concentrations.

Further information on the PRI analysis and pension funding can be found at
http://www.watsonwyatt.com/pensionriskindex.

About Watson Wyatt Worldwide

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 31
countries and is located on the Web at www.watsonwyatt.com.

The HR industry´s premier online community and resource for Human Resource professionals: HR, human resources, HR community, human resources community, HR best practices, best practices in human resources, online communities for HR, HR articles, HR news, human resources articles, human resources news, HR events, leadership, performance management, staffing and recruitment, benefits, compensation, staffing, recruitment, workforce acquisition, human capital management, HR management, human resources management, HR metrics and measurement, organizational development, executive coaching, HR law, employment law, labor relations, hiring employees, HR outsourcing, human resources outsourcing, training and development
hr.com. human resources management resources for hr professionals. | HR menus | HR events | HR Sitemap