WASHINGTON, June 27, 2006 - With the pension reform bill at a critical
point in Congress, a new analysis by Watson Wyatt Worldwide shows that a
significant number of the nation´s largest companies are reconsidering
their commitment to providing traditional pensions to millions of U.S.
workers. As a result, Watson Wyatt, a global human capital consulting firm,
is calling on lawmakers to take advantage of this historic opportunity to
rework the current pension laws to help companies continue to sponsor such
plans.
"The traditional pension system, which has served Americans well for
decades, continues to play a valuable role in ensuring employees can retire
when they and their employers want them to," said Sylvester J. Schieber,
director of U.S. benefits at Watson Wyatt. "Congress has an opportunity to
create an environment in which employers will be able to sponsor pensions
and make sure employees have adequate retirement income. If it fails to
take advantage of that opportunity, both employers and employees will
suffer."
A Watson Wyatt analysis of FORTUNE 1000 companies, many of which sponsor
more than one pension plan, shows an increase in pension plan freezes and
terminations. As of April 2006, 113 companies have at least one frozen or
terminated defined benefit plan or have announced plans to freeze or
terminate a plan, compared with 71 in 2004. An analysis Watson Wyatt
released in May showed similar trends when just the largest 100 firms were
analyzed. When plans are frozen, current plan participants receive no
additional benefits from either additional tenure or increases in
compensation. When plans are terminated, participants are either given an
annuity or a lump sum payment. If sponsors cannot afford to pay all
benefits owed, the Pension Benefit Guaranty Corporation takes over the plan.
Pension Plan Sponsorship Among FORTUNE 1000 Firms
FORTUNE List
Number of defined benefit plan sponsors
Number of plan sponsors with frozen or terminated plan
2005
627
113
2004
627
71
2003
633
45
2002
624
39
2001
638
34
The number of companies that closed a plan to new hires or announced such
an intention has increased from 25 to 49 since 2004. Schieber said those
statistics are particularly discouraging, as they indicate a trend with
long-term implications for future generations of workers.
Overall, 162 companies had at least one plan that was frozen, terminated or
closed to new hires as of April or announced plans to take such action in
the future, compared with 96 in 2004.
Regardless of Congress´ decisions on pension reform, employers should keep
in mind the potential ramifications of switching from a defined benefit to
a defined contribution-only system, such as a 401(k) plan. Moving to such a
system may make it harder to retain employees and ensure they have adequate
retirement savings.
Many employees are not taking advantage of their 401(k) plans or saving
enough, and their retirement payouts will be heavily influenced by the
state of financial markets. For instance, an employee with a balanced
portfolio who retired in 1999, before the dot-com bust, would have been
able to replace 61 percent of his income in retirement, but a co-worker
with an identical portfolio who retired just three years later would have
been able to replace only 36 percent of his income. As a result, many
employees will not be able to retire when they want to, or when their
employer wants them to, creating workforce management issues that employers
may not face with defined benefit plans.
"As Congress considers pension reform, it should be careful not to pass
laws that would make it even harder for companies to maintain their
traditional pensions," Schieber said. "Employers are clearly struggling
with decisions regarding retirement plans, in large part because of decades
of legal and regulatory uncertainty. It would be extremely unfortunate -
for employees and employers - if new laws pushed companies in the wrong
direction."
Read suggestions on issues that plan sponsors should consider when
assessing retirement plans here:
http://www.watsonwyatt.com/news/press.asp?ID=15992
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,
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