The 2002 Survey of Actuarial Assumptions and Funding is Watson Wyatt’s 34th annual survey of pension plans in the United States covering 1,000 or more active participants. The survey provides information on the funded status of pension plans, the actuarial assumptions used to determine their funded status and the actuarial bases used to determine cash funding amounts. The survey presents data to illustrate trends in the choice of actuarial assumptions and methods and the changes in funded status.

Financial Accounting Standards Board Statement Number 87 (FAS 87) established standards of financial accounting and reporting for employers that offer pension benefits to their employees. Plan information related to FAS 87 is not discussed in this report. FAS 87 information for companies’ 2001 fiscal year is presented in Watson Wyatt’s report Accounting for Pensions and Other Postretirement Benefits, 2002.

Four hundred nineteen companies participated in the 2002 survey, reporting on 472 pension plans. Watson Wyatt has been appointed actuary for 384 of the plans. The survey data are based on plan valuations: 6 percent of the valuations are for the 2000 plan year, 57 percent are for the 2001 plan year, and 37 percent are for the 2002 plan year.

Nineteen percent of all plans surveyed for 2002 have a “hybrid” plan design where the formula benefit is expressed as a lump sum. Traditional defined benefit pension plans express accrued benefits in an annuity form. The hybrid plans come in two forms: cash balance plans that accrue benefits based on career average pay or a flat-dollar amount and pension equity/cash value plans that accrue benefits based on final average pay.

The primary benefit formula for 55 percent of the plans is a traditional final average pay formula and for 8 percent of the plans, the primary benefit formula is a PEP/Cash Value formula based on final average pay. For 11 percent of the plans, the primary benefit formula is a traditional career average pay formula, and for 11 percent of the plans the primary benefit formula is a cash balance formula based on career average pay. For the remaining 15 percent of the plans the primary benefit formula is unrelated to pay.

The survey was produced by Watson Wyatt’s Research and Information Center. If you have questions about the survey or are interested in a more detailed, specialized analysis, please contact your local Watson Wyatt office.