Towers Watson Pension Index up 4.5% in December

January 14, 2010 ( - Continuing positive equity results, along with significant increases in bond yields, helped boost the Towers Watson Pension Index 4.5% in December, to 71.6, according to the company’s Capital Market Update.

With December’s increase, the Towers Watson Pension Index is now up 8.5% from its 66.0 value at the start of 2009, according to a press release. Additionally, the benchmark investment portfolio used in the index recorded a 1.1% return for December, pushing the portfolio’s year-to-date return up to 19.4%.

Conversely, the index liability measure (based on projected benefit obligations) fell 3.5% for the month and ended the year with an 8.6% overall increase.

“Results for 2009 included one of the strongest stock market rallies ever seen, as evidenced by the 58% return on our benchmark equity portfolio over the last 10 months of the year,” said Jerry Mingione, a leader in the company’s Retirement Financial Management practice, in the press release. “Even with this increase, equity values have still not recovered all that was lost during the earlier capital market crisis period. At the same time, long corporate yields have approached historic low levels. The keys going forward would appear to be whether equity values will continue to advance and whether increasing business activity and possible changes in Federal Reserve monetary policy will act to push up long corporate yields. The alignment of both of these factors would mean another strong year for pension financing.”

The Towers Watson Pension Index reflects the asset-liability performance of a hypothetical benchmark pension plan. The benchmark asset portfolio is composed of 60% equity and 40% fixed income. The benchmark pension plan is a final-pay-based plan covering a typical (relatively mature) participant group.  Approximately half of the benchmark plan liabilities relate to inactive participants, with a resulting duration of approximately 12 (about average for large corporate plans). The funded status for the benchmark plan is intended to be indicative of capital market results rather than to specifically align with the average for U.S. corporate or public pension plans. 

The report is the first joint Capital Markets Update from the recently merged Towers Perrin and Watson Wyatt Worldwide (see It’s (Nearly) Unanimous: Shareholders Back Towers Watson Merger). The index was formerly the Towers Perrin Pension Index (see Equity Markets in November Improve Pension Funding).