Pension-plan liabilities posed relatively high amounts of financial risk for 9 percent of companies in 2005, down from 17 percent in 2003, according to a study of large employers by Watson Wyatt.
The firm analyzed Fortune 1000 companies that sponsored defined benefit pension plans in 2005. The analysis measured the potential dollar value decline in a pension plan's funded status (reflecting both plan assets and liabilities) under an adverse financial market scenario. The potential drop in funding was then compared with the sponsoring company's market value.
The study found that more pension sponsors experienced relatively low pension-related risk in 2005. Pension liabilities posed scant risk to the core business for 60 percent of plan sponsors, an increase from about 56 percent in 2004 and 51 percent in 2003.
"Thanks to a sound economy and considerable corporate contributions, America 's pension plans are generally on firmer financial footing than they were two years ago," says Mark Warshawsky, director of retirement research at Watson Wyatt. "With anticipated improvements in pension plan funding due in part to new rules and reductions in pension risk, concerns about the strength of our pension system should be greatly alleviated."
A separate Watson Wyatt analysis of pension funding found that the aggregate funding level for Fortune 1000 companies' pension plans increased from 82 percent to 92 percent between 2002 and 2005.