U.S. Employers Face Huge Pension Funding Tabs Without Relief, Watson Wyatt Analysis Finds

• Press Release
• Source: Watson Wyatt
• On 11:36 am EDT, Wednesday October 7, 2009

WASHINGTON, Oct. 7 /PRNewswire-FirstCall/ -- Despite recent increases in asset values and regulatory relief from the Internal Revenue Service (IRS), U.S. employers will be required to contribute $89 billion into their defined benefit (DB) plans in 2010 and more than $146 billion in 2011 unless they receive funding relief from the federal government, according to an analysis by Watson Wyatt, a leading global consulting firm.

"The combination of a deep recession and new pension law has landed employers in extraordinary circumstances, and they need temporary funding relief to lessen the enormous pension contributions required in the next few years," said Mark Warshawsky, director of retirement research at Watson Wyatt, who testified on these points at an October 1 House Ways and Means Committee hearing.

Watson Wyatt analyzed the projected required contributions for single-employer DB plans under various scenarios: the existing law (including the September 25 IRS guidance) and three legislative proposals currently under consideration.

The analysis found that past relief granted by legislation and regulations had lowered required contributions for corporate pension plans to $32 billion in 2009 from $38 billion in 2008. But without further action, employers' contributions would explode to more than $146 billion in 2011. Under the three legislative proposals, employers' contributions would be somewhat lower, by $10 billion to $25 billion annually with different time paths, but required contributions would still be very large.

Without additional funding relief, the average regulatory funded status would decline slightly from 96.4 percent in 2008 to 93.8 percent in 2009, and then fall to 83.8 percent in 2010 and to 76.8 percent in 2011, the analysis found.

Measured funded status and contributions under current law and proposals:

                  Plan    Law    Current      House    Rep. Earl     Minority
                  year  prior  law (as    Education   Pomeroy's      Leader
                          to    of Sept.     & Labor   discussion     John
                        Sept.    25,      Committee     draft       Boehner's
                         24,    2009)         bill                    bill
                         2009
                  ----    ---  --------- ----------  ----------   ----------
    Average
     measured      2008   96.4     96.4         96.4      96.4         96.4
    funded status
      (%)          2009   93.8     93.8         93.8     102.3        102.3
                   2010   77.7     83.8         83.7      84.5         82.5
                   2011   77.4     76.8         75.7      77.1         74.5
                   ----   ----     ----         ----      ----         ----
    Contributions  2008   37.9     37.9         37.9      37.9         37.9
    ($b)           2009   32.4     32.4         30.4      40.8         10.4
                   2010  120.5     89.0         70.9      79.0         71.4
                   2011  145.2    146.5        130.0     120.8        124.9
                   ----  -----    -----        -----     -----        -----

"A crucial decision lies ahead for lawmakers," said Gene Wickes, global director of benefits consulting at Watson Wyatt. "Congressional and administration support for funding relief would help ensure that DB plans remain viable for employers and a vital element in the retirement security for workers. It could also save employers from making the difficult choice between large, required pension contributions or jobs, wages and capital investment."

For the funding analysis, please visit: http://www.watsonwyatt.com/us/pubs/insider/showarticle.asp?ArticleID=22407

For the testimony, please visit: http://waysandmeans.house.gov/hearings.asp?formmode=view&id=8071.

About Watson Wyatt

Watson Wyatt (NYSE, Nasdaq: WW - News) 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 7,700 associates in 33 countries and is located on the Web at www.watsonwyatt.com.

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