WASHINGTON, Jan. 13 /PRNewswire-FirstCall/ -- U.S. employers will be required to contribute more than $108 billion into their defined benefit plans this year, according to an analysis by Watson Wyatt, a leading global consulting firm. Although that's roughly $16 billion less than employers would have had to contribute without the passage of a new pension funding relief law late last year, Watson Wyatt pension experts say employers will still need additional relief.

"This new law is a positive first step," said Alan Glickstein, a senior retirement consultant with Watson Wyatt. "However, we urge lawmakers to pass additional temporary funding relief as companies transition to new, more restrictive funding requirements while battling declining pension asset values and a weakened economy."

Watson Wyatt estimates that even with the enactment of the Worker, Retiree and Employer Recovery Act of 2008, both the required contribution levels in 2009 ($108.7 billion) and 2010 ($102.8 billion) will mark a significant jump from 2008 ($38 billion). Additionally, some employers that fail to meet the minimum 80 percent funded threshold may contribute an additional $3.2 billion. Otherwise, the payment of lump-sum benefits would be restricted under the Pension Protection Act (PPA).

Projected impact on contributions with and without the Recovery Act:

                Plan year    Average       Contributions           Extra
                            Regulatory     ($ billions)        contributions
                           funded status                         to avoid
                               (%)                               benefits
                                                                restrictions
                                                                ($ billions)

    Previous      2009         75.1           125.1                 3.2
                  2010         80.1           117.6                 5.1

    Recovery Act  2009         75.1           108.7                 3.2
                  2010         80.5           102.8                 4.7

While the Recovery Act will provide some relief, given the magnitude of declines in pension assets and funded status, companies will still struggle to meet the large and unexpected contributions required in the next two years. The current situation could be greatly improved by combining the provisions in the Recovery Act with those in two other major relief proposals: one that widens the asset value corridor to 80 to 120 percent of market value in 2009 and 2010 (from the current 90 to 110 percent) for plans using averaged or smoothed valuation methods; and one that permits a free election of either smoothing or a full mark-to-market valuation approach in 2009. Both of these proposals will be put before Congress as it reconvenes this month and are strongly supported by various associations representing employers and funds nationwide.

According to the Watson Wyatt analysis, each proposal independently would provide modest relief. Combining both with the Recovery Act would generate more significant improvement in plan funded status and reduction in required contributions. Plans would likely move to full smoothing valuation methods for both assets and liabilities.

The most substantial relief is provided by a combination of proposals:


      Proposal   Plan year      Average     Contributions       Extra
                               regulatory    ($ billions)    contributions
                             funded status                   ($ billions)
                                   (%)
      Proposed
     combination    2009           87.3           65.7            2.3
                    2010           85.5           84.4            2.2

"PPA will eventually lead to better and smoother funding," said Mark Warshawsky, director of retirement research at Watson Wyatt. "But its implementation could not have happened at a worse time. Now, as contributions jump, employers may be forced to make tough choices to cut costs. We hope that with more temporary funding assistance, employers will still be able to provide defined benefits plans and their employees will continue to enjoy retirement security."

For more information read the Watson Wyatt Insider article: http://www.watsonwyatt.com/us/pubs/insider/showarticle.asp?ArticleID=20284

For more information about the Worker, Retiree and Employer Recovery Act, visit: http://www.watsonwyatt.com/news/globalnews2.asp?ID=20292&nm=United%20States

About Watson Wyatt

Watson Wyatt (NYSE, Nasdaq: WW) is the trusted business partner to the world's leading organizations on people and financial issues. The firm's global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,600 associates in 32 countries and is located on the Web at www.watsonwyatt.com.

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