Pension liabilities pose little threat to financial health of most US companies

Pension Risk Index also indicates minimal risk to the broader U.S. economy



Pension plan liabilities pose little risk to the financial health of most U.S. companies, according to a new analysis by Watson Wyatt, a leading human capital consulting firm. Furthermore, potential risk from pension plans to the broader U.S. economy is likely minimal.

Watson Wyattís analysis found that pension plan liabilities at about half of the Fortune 1000 companies with defined benefit plans pose little risk to the financial stability of the companyís core business. Companies with moderate or high pension risk may face financial challenges from their pension plan during poor market conditions. About 30 percent of companies face a moderate amount of risk, while the remaining 20 percent are exposed to relatively high risk levels.

However, the analysis also found that the companies that carry the majority of the total value of pension risk tend to be financially healthy and thus likely able to weather a financial crisis. Eighty-four percent of the aggregate pension risk currently in the system belongs to companies with an investment-grade bond rating. The remaining 16 percent belongs to companies with a junk-bond rating.

ìDespite pockets of trouble in the pension system, employers for the most part face only a small or moderate amount of risk,î said Julia Coronado, senior research analyst at Watson Wyatt. ìIn fact, since there are relatively few companies with high pension risk, the broader risk to the U.S. economy seems to be minimal.î

Watson Wyattís Pension Risk Index (PRI) quantifies the amount of risk a particular companyís pension fund imposes on its core business. The analysis measures the potential dollar value decline in a pension planís funded status (reflecting both plan assets and liabilities) under a worst-case financial market scenario. The potential drop in funding is then compared with the sponsoring companyís market value.

ìWith all the concern about pension funding, the findings from our analysis should be seen as good news,î said Carl Hess, global director for asset allocation at Watson Wyatt Investment Consulting. ìBy proactively considering strategies to mitigate their pension risk, companies can reduce the potential threat to their core operations.î

Distributed by HR Marketer.com

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