Watson Wyatt Worldwide - HR Finance Alert

Companies Taking Measured Approach to Economic Crisis

As the impact of the global economic crisis is felt, a quarter of U.S. employers expect to make layoffs in the next 12 months; however, most companies are focusing on increased employee communication and smaller cost-saving measures.

Bailout Package: Template for Future Compensation Regulation?

Despite new restrictions in the recently passed congressional bailout bill, compensation committees will not need to overhaul their core pay-for-performance programs. However, as the law might be expanded to cover all companies, they should assess and reconsider the necessity of their existing severance and change-in-control provisions in light of other compensation elements.

Economic Crisis Puts Focus on Pension Accounting Rules

The economic crisis is shining a bright light on pension accounting, just as the U.S. Securities and Exchange Commission has voted to move U.S. companies toward adopting international accounting standards. Further complicating matters, the International Accounting Standards Board (IASB) is considering changes to its pension accounting rules, making it difficult to assess the impact of moving to international standards.

Investment World Being Redefined

Before the credit crisis, experts at Watson Wyatt were predicting the growing complexity of investment products, the �short-termism� of financial markets and the increasing likelihood of extreme market events.

Credit Crisis Dampening Use of Derivatives

The use of derivatives by U.S. pension funds to hedge risk will likely slow down because of the ongoing credit crisis. According to experts at Watson Wyatt, since the start of the credit crisis last year, the execution of derivatives-based liability hedging strategies has been losing pace. This is mainly due to more onerous legal conditions. Additionally, at certain points during the year, available yields were not considered attractive.

Financial Crisis Highlights Defined Benefit vs. Defined Contribution Debate

The financial crisis starkly highlights the relative pros and cons of defined benefit pensions and 401(k) plans. The predictable, mainly guaranteed income of pensions (including hybrid plans such as cash balance) contrasts sharply with the day-to-day fluctuation of 401(k) account values.

Pension Funds Drive Alternative Asset Growth

Demand for alternative assets continues to be strong, as pension funds around the world seek to diversify their portfolios and capture alpha through absolute return strategies.

Large Employers Slow Changes to Retirement Plans

The pace of retirement plan changes among FORTUNE 100 companies is stabilizing, and a majority still offer pension plans to their new employees.

U.S. Employers Keeping Pay Raises Steady for 2009

Despite a slumping economy, U.S. companies are planning to keep pay raises steady next year. Employers expect to give workers merit increases that will average 3.5 percent in 2009. This is the same salary increase, on average, that workers received this year and is just slightly lower than the 2007 average of 3.6 percent.

Pensions Outperformed 401(k) Plans During Last Bull Market

Rates of return for defined benefit (DB) pension plans outpaced those for employee-directed 401(k) plans during the most recent bull market from 2003 to 2006.

Companies Continue Moving Toward Selective Outsourcing

Employers continue to selectively outsource their HR technology and functions rather than rely exclusively on a single provider.

Employers Enhancing 401(k)s to Compensate for Retirement Plan Changes

Many companies that shift from traditional defined benefit (DB) pension plans to defined contribution (DC) plans, such as 401(k)s, are enhancing contributions to their DC plans. However, the overall retirement value delivered by employers that provide only DC plans is generally less than what is provided by companies with a combined DB and DC approach.

High Risk Level in Some Target-Date Funds Could Come as Surprise

Although target-date funds are designed to automatically shift investors� portfolios to less-risky assets as they age, some funds are more heavily weighted toward equities than might be optimal.

Global Accounting Standards Might Apply Sooner Than Thought

Recent events and public statements from various accounting constituencies suggest that International Financial Reporting Standards (IFRS) might be adopted in the United States within the next several years.

More Companies Disclose Executive Pay Goals

More U.S. companies disclosed the specific goals used in their executive compensation plans in their 2008 proxies than in 2007. However, one-third of companies still did not provide this information.

Consumer-Driven Plans Growing, With Cost Savings for Some Employers

The number of companies offering consumer-directed health plans (CDHPs) is growing, along with the number of workers enrolling in them. Health cost increases for companies with high enrollment in CDHPs are roughly half those of companies offering traditional health coverage.

Health Costs Leading More Employers to Open Onsite Health Centers

High health costs and a renewed focus on worker productivity have led an increasing number of companies to open onsite health centers in recent years. According to a recent Watson Wyatt study of 84 companies with centers, reducing medical costs was the chief reason 70 percent of companies have opened onsite health centers since 2000 (recent adopters).

Financial Incentives for Employee Health Expected to Rise

The number of employers offering workers financial incentives to better manage their health is expected to jump sharply next year, according to a survey by Watson Wyatt Worldwide and the National Business Group on Health.

Many Companies Won�t Disclose Performance Goals in Proxies

Efforts by the Securities and Exchange Commission (SEC) to encourage more disclosure of executive compensation are not making inroads with employers on one significant issue. A Watson Wyatt poll of 135 large U.S. companies shows most are reluctant to disclose performance goals for executive pay programs in their 2008 proxy statement.

Many Factors Influence 401(k) Investing

While the average U.S. household invests about 55 percent of its 401(k) or other defined contribution plan assets in common stocks, many Americans are investing all or nothing in equities. A host of factors, including education level and marital status, is contributing to these decisions, a new analysis of government data by Watson Wyatt has found.