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Companies should carefully consider their own needs as they analyze the long-term viability of their pension plans, say Alan Glickstein and Kevin Wagner, retirement experts with Watson Wyatt Worldwide, a global human capital consulting firm.

Glickstein and Wagner suggest that companies consider five issues:

• The possible impact of legislative and regulatory changes. The outcome of a congressional rewrite of pension laws this year and the Financial Accounting Standards Board’s plans to adopt new rules requiring pension assets and obligations to be shown on the balance sheet have yet to be decided. Plan sponsors must weigh making a decision now against the possibility that the rules may change to allow other options, such as “hybrid” plans.
• Workforce management needs. Each company’s retirement plan needs to take into account changing workforce demographics and a broader workforce management strategy. For instance, few companies in the health care, chemical manufacturing, oil and gas or financial services fields have made significant changes to their retirement plans, due in large part to the need to attract and retain workers.
• Risk assessment. Companies need to accurately assess how much risk their pension plan is placing on their business. According to Watson Wyatt’s Pension Risk Index, which measures the worst-case one-year change in pension funding to the company’s market cap, different industries have considerably different levels of pension risk. For example, transportation companies and durable goods manufacturers by far face the most risk. The vast majority of FORTUNE 1000 companies, however, do not have high pension risk. Once a company correctly analyzes its pension risk, it can develop an appropriate plan design and investment strategy to manage volatility.  
• Investment strategies. Aligning investments with the plan’s short- and long-term needs is critical to managing volatility.  
• Legacy liabilities. Just because a pension plan is frozen or closed does not mean management challenges go away. The plan and the associated liabilities still have to be managed for decades.

“These five issues are just a few aspects that companies need to consider,” Glickstein says. “Each company must assess its own needs as it weighs plan changes, and must make sure it takes into account its long-term business goals.” 

Wagner adds, “The flux in the marketplace is making it very hard for companies to analyze how changes to their retirement plan may affect their ability to attract and retain employees. For many companies, it may make sense to wait to see how all the changes shake out before making their decision.” 

About Watson Wyatt Worldwide

Watson Wyatt (NYSE: WW) is a leading global human capital and financial management consulting firm.  The firm specializes in employee benefits, human capital strategies, technology solutions, investment consulting, and insurance and financial services.  Watson Wyatt has 6,000 associates in 30 countries and is located on the Web at www.watsonwyatt.com.

Alan Glickstein is national practice leader for policies and processes in Watson Wyatt’s retirement practice. He is located in the firm’s Dallas office. 

Kevin Wagner is practice director for growth for Watson Wyatt’s retirement practice. He is located in the firm’s Detroit office.

Together, they have more than four decades of experience working with clients on retirement issues.

Contact

Ed Emerman, 609/452-5967, eemerman@eaglepr.com
Emily Rieger, 703/258-7634, emily.rieger@watsonwyatt.com