"This new law is a positive first step," said
Watson Wyatt estimates that even with the enactment of the Worker, Retiree and Employer Recovery Act of 2008, both the required contribution levels in 2009 (
Projected impact on contributions with and without the Recovery Act:
Plan year Average Contributions Extra Regulatory ($ billions) contributions funded status to avoid (%) benefits restrictions ($ billions) Previous 2009 75.1 125.1 3.2 2010 80.1 117.6 5.1 Recovery Act 2009 75.1 108.7 3.2 2010 80.5 102.8 4.7
While the Recovery Act will provide some relief, given the magnitude of declines in pension assets and funded status, companies will still struggle to meet the large and unexpected contributions required in the next two years. The current situation could be greatly improved by combining the provisions in the Recovery Act with those in two other major relief proposals: one that widens the asset value corridor to 80 to 120 percent of market value in 2009 and 2010 (from the current 90 to 110 percent) for plans using averaged or smoothed valuation methods; and one that permits a free election of either smoothing or a full mark-to-market valuation approach in 2009. Both of these proposals will be put before Congress as it reconvenes this month and are strongly supported by various associations representing employers and funds nationwide.
According to the Watson Wyatt analysis, each proposal independently would provide modest relief. Combining both with the Recovery Act would generate more significant improvement in plan funded status and reduction in required contributions. Plans would likely move to full smoothing valuation methods for both assets and liabilities.
The most substantial relief is provided by a combination of proposals:
Proposal Plan year Average Contributions Extra regulatory ($ billions) contributions funded status ($ billions) (%) Proposed combination 2009 87.3 65.7 2.3 2010 85.5 84.4 2.2
"PPA will eventually lead to better and smoother funding," said
For more information read the Watson Wyatt Insider article: http://www.watsonwyatt.com/us/pubs/insider/showarticle.asp?ArticleID=20284
For more information about the Worker, Retiree and Employer Recovery Act, visit: http://www.watsonwyatt.com/news/globalnews2.asp?ID=20292&nm=United%20States
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 7,600 associates in 32 countries and is located on the Web at www.watsonwyatt.com.
SOURCE Watson Wyatt