DB Plan Risk Especially Improved in 2006

December 13, 2007 (PLANSPONSOR.com) - A Watson Wyatt analysis found that pension plan liabilities posed relatively high financial risk for only 8% of FORTUNE 1000 companies with pension plans in 2006, down from 17% in 2003.

According to a news release, about 29% of companies sponsoring pensions have a moderate amount of risk, while the remaining 63% are exposed to relatively low risk levels – including 11% for which pension plans pose no business risk.

“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, in the release.

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 under an adverse financial market scenario and compares that with the sponsoring company’s market value.

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

“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, in the release.

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