Watson Wyatt analysis shows pension funds fare well in 2007
Despite recent market volatility in asset values and discount rates, pension funds are again expected to fare well when final 2007 numbers are known, according to Watson Wyatt’s analysis of Fortune 1000 companies which sponsored defined benefit pension plans in 2006.
The analysis found pension plan liabilities posed relatively high financial risk for only eight per cent of these companies in 2006, down from 17 per cent in 2003. About 29 per cent of companies sponsoring pensions have a moderate amount of risk, while the remaining 63 per cent are exposed to relatively low risk levels.
The latter group includes some firms (11 per cent) 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 alleviate sponsors’ concerns about pension deficits damaging their bottom line.”
The findings are based on Watson Wyatt’s Pension Risk Index that quantifies 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.
