Watson Wyatt Worldwide - Articles

Insider: Defined Benefit vs. 401(k) Investment Returns: The 2006-2008 Update

Watson Wyatt has been comparing investment rates of return in defined benefit (DB) and defined contribution (DC) plans for more than 10 years, and DB plans have been the long-term victor. This analysis updates our prior studies with investment returns for 2006 and 2007 for a large set of plans, as well as a snapshot of year-end returns for 2008 based on a small set of plan sponsors.

Insider: Will the "CLASS" Program Succeed? Is It Sustainable?

Both the House and Senate health care reform bills currently being debated would establish a new voluntary long-term care insurance program. Called CLASS, the new program would be offered to all workers through the Department of Health and Human Services (DHHS). CLASS is significant for at least three reasons.

Strategy At Work: Panel Discussion: World-Class Acquirers Share M&A Practices

Watson Wyatt's Jim McKay, senior consultant, met recently with Liz Huldin, director of M&A and integration at Boeing, and Larry Cook, program leader of HR M&A and benefits integration at General Electric, to discuss how HR professionals can play an active role in the global M&A process. The three covered the keys to M&A success and some potential pitfalls.

Insider: Health Care Reform Bills Have Important Implications for Retiree Health Plans

The Affordable Health Care for America Act (H.R. 3962) approved by the House on Nov. 7 and the Patient Protection and Affordable Care Act (H.R. 3590) now under debate in the Senate would affect retiree health plans significantly. Some of the changes — such as taxing the retiree drug subsidy (RDS) provided to employers and prohibiting employers from reducing benefits after employees retire — could have a chilling effect on the sponsorship of retiree health benefits. On the other hand, a proposed reinsurance program for early retirees would (temporarily) reward sponsors of employment-based plans.

Insider: Retirement Plans on Legislative Radar Screen for Late 2009

Health care reform has dominated the legislative agenda for much of 2009 — especially as legislation moved through committees and floor debates during the late summer and fall sessions. But retirement issues are also receiving attention and might see some action before the 2009 session ends. Defined benefit (DB) plan sponsors are hoping for funding relief, and lawmakers may discuss legislation to address disclosure of 401(k) fees. In addition, a new bill recently introduced in the House would change the nondiscrimination rules for qualified retirement plans.

Insider: Hybrid Plans in 2010 and Beyond

A new study by Watson Wyatt highlights the wide-ranging variations in hybrid pension plans, reflecting the spectrum of sponsors’ workforce planning, compliance and other needs and goals. It examines eligibility requirements, definitions of applicable compensation, benefit formulas, interest rates and transition methods for cash balance plans (CBPs) and pension equity plans (PEPs).

Strategy At Work: H1N1: Don’t Let It Make Your Organization Sick

Strategy At Work: A Culture of Health

Unum developed a health care strategy that uses an integrated approach to managing health care costs through programming; employee accountability and participation; and tools, resources and education. A $5 million investment in wellness and health programming resulted in $12 million in savings.

Strategy At Work: Consultants’ Roundtable: What Health Care Reform Will Mean for Employers

As the debate surrounding health care reform continues, four Watson Wyatt consultants weigh in on what reform could mean for employers around the country and recommend steps for employers to take now.

Strategy At Work: Staying Power

Kruger Products slashed turnover from 14 percent to only 2 percent and raised engagement levels by listening to employees -- and then taking action.

Insider: Legislation to Extend, Expand
COBRA Subsidy Introduced

The Consolidated Omnibus Budget Reconciliation Act (COBRA) subsidy enacted as part of the American Recovery and Reinvestment Act (ARRA) in February (see Watson Wyatt Insider, March 2009) will begin to phase out at year's end. ARRA provides a 65 percent premium subsidy for qualified beneficiaries who lose their health coverage and become eligible for COBRA following an involuntary termination of employment by Dec. 31, 2009. The premium subsidy is available for the first nine months of COBRA coverage, so the subsidy has already ended for those who began receiving it immediately after enactment. Others will continue receiving the subsidy into 2010.

Insider: Legislation Introduced to Mandate
Paid Sick Leave

On Nov. 3, House Education and Labor Committee chair George Miller (D-Calif.) introduced the Emergency Influenza Containment Act to ensure that employees sent home by their employers because of a contagious illness receive paid sick leave. On Nov. 17, Senator Chris Dodd (D-Conn.) and Representative Rosa DeLauro (D-Conn.) introduced the Pandemic Protection for Workers, Families and Businesses Act, which shares many of the same goals, although there are important differences between the two bills as well. Paid sick leave has been receiving more attention from lawmakers recently, and legislative action is possible.

Insider: House Approves Health Care Reform; Senate Begins Debate

On Nov. 7, in a rare Saturday vote, the House of Representatives approved the Affordable Health Care for America Act (H.R. 3962) by a tally of 220 to 215. While the vote represents an important step forward in the health care reform debate, lawmakers still have a long and difficult battle ahead.

Strategy At Work: Navigating the Cross-Selling Landscape

Insider: Pay Czar Reduces Executive Pay for Firms Receiving Exceptional TARP Assistance

In an effort to tie compensation more closely to long-term performance and appropriate competitive levels, Special Master for TARP Executive Compensation Kenneth R. Feinberg has directed companies that received exceptional Troubled Asset Relief Program assistance to cut compensation for top executives by an average of 50 percent. While the pay cuts apply to only seven firms, the levels and structures could become a template for compensation at other financial institutions that participate in TARP. Feinberg also clarified that these firms are subject to the same corporate governance provisions that apply to other TARP recipients, including say-on-pay votes, clawbacks, compensation consultant disclosures, risk reviews, perquisite disclosures, prohibition on tax gross-ups and chief executive officer/chief financial officer certifications.

Insider: IRS Releases Regulations on Employer Comparable Contributions to HSAs

The IRS has released final regulations on employer comparable contributions to health savings accounts (HSAs). The regulations also provide guidance on the method and timing of reporting and paying excise taxes due under the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Health Insurance Portability and Accountability Act (HIPAA) and the HSA (and Archer medical savings account) comparable contribution rules.

Insider: Intranet Posting of Schedule SB

The 2008 Form 5500 instructions direct defined benefit (DB) pension plan sponsors (or plan administrators acting on their behalf) to display actuarial information from the form on their intranets. The instruction reflects a new PPA disclosure requirement for DB plan sponsors that maintain intranet Web sites for their employees. The DOL is also currently posting scanned versions of 2008 Schedule SB filings on a Web site that may be viewed by the general public.

Insider: FAS 123(R) Option Assumptions: The 2008 Results

Watson Wyatt recently completed its third annual analysis of stock option valuation assumptions and results under Statement of Financial Accounting Standards (SFAS) 123(R). From 2007 to 2008, the percentage of companies disclosing option fair values decreased from 73 percent to 72 percent. The median percentage increase in stock compensation expense from 2007 to 2008 was 2.4 percent.

Insider: New Law Expands Military FMLA Leave Rights

The National Defense Authorization Act for Fiscal Year 2010 (H.R. 2647) expands eligibility for certain rights under the Family and Medical Leave Act (FMLA). The new law will increase the number of employees who qualify for leave on account of a family member's deployment and will broaden the circumstances in which employees may take leave to tend to a family member with a service-related injury or illness. The provisions took effect when President Obama signed the legislation on Oct. 28, 2009.

Strategy At Work: Global Benefits Governance for Multinational Corporations

Strategy At Work: Succession Planning Done Well: A Strategic Advantage

Insider: Mental Health Parity: What Employers Need to Know

After more than a decade of discussion, Congress finally enacted legislation mandating full parity for mental health and substance abuse benefits. The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act (MHPAEA) became law on Oct. 3, 2008, as part of the Emergency Economic Stabilization Act. The law, which generally becomes effective in 2010, affects insured and self-insured group health plans provided by employers.

Insider: Health Care Reform Bill Would Restrict Health Insurers' Compensation

A provision in America’s Healthy Future Act, passed by the Senate Finance Committee on Oct. 13, would limit deductible compensation for health insurers. If the provision makes it into the final legislation, it will establish a special rule under section 162(m) to cut the deductible compensation limit in half — from $1 million to $500,000 — for “covered health insurance providers.” The provision is targeted at the health insurance industry — employers with self- insured plans are excluded.

Insider: IRS Announces Annual Cost-of-Living Limits

The IRS has announced the annual cost-of-living and statutory adjustments of various dollar limits for employee benefit plans. The limits that are adjusted by reference to Section 415(d) will remain unchanged for 2010.

Insider: Ways and Means Committee Holds Hearing on DB Plan Funding and Investment Advice

On Oct. 1, 2009, two panels testified before the House Committee on Ways and Means on retirement -related matters. The first focused on, and lobbied for, defined benefit (DB) pension funding relief. The six panelists, including Watson Wyatt's director of Retirement Research, Mark Warshawsky, Ph.D., provided a wide range of experience and expertise. While it was universally accepted that pension relief is necessary, panelists disagreed about its form and who should receive it. Some advocated temporary relief from certain provisions of the Pension Protection Act of 2006 (PPA), while others argued for permanent changes to the law.

Insider: DB Plan Funding Update: Extending the Analysis Period Shows the Need for Smoother Funding Relief

In a series of studies since the global financial crisis began, Watson Wyatt has projected the regulatory funded status and minimum required contributions for single-employer defined benefit (DB) plans, in the aggregate. It has serially updated the analysis to reflect changing market conditions, new regulations and enacted or proposed temporary legislative relief. The studies have contributed to fruitful discussions with sponsors, regulators and legislative staff in the pension community; indeed, the article published in the October 2009 Insider underlay Mark Warshawsky’s Oct. 1 testimony to the House Ways and Means Committee. This new study continues that effort by incorporating market conditions to Oct. 15, 2009, adding two proposed legislative relief provisions and extending the funding horizon out to 2013.

Strategy At Work: 10 Questions for Chris Palmer, vice president, human resources, Lafarge North America, Inc.

Strategy At Work: Consultants' Roundtable: Harnessing the Power of Social Media

Four Watson Wyatt thought leaders discuss what social media really means, and how businesses can use it to their advantage.

Insider: Watson Wyatt Testifies in Support of Funding Relief for DB Plan Sponsors

Testimony of Mark Warshawsky, Director of Retirement Research, Watson Wyatt Worldwide, presented to the House Committee on Ways and Means at the hearing “Defined Benefit Pension Plan Funding Levels and Investment Advice Rules,” Oct. 1, 2009.

Insider: Balancing Risk and Growth
In Sales Incentive Plans

Even as the economy continues to show signs of improvement, the recent financial turmoil has permanently altered the business environment. For example, the dialogue about risk, particularly as it relates to incentive compensation, is forever changed. Critics have accused various would-be culprits of triggering one of the worst economic crises in recent history, and many believe they have found the smoking gun in today’s executive and sales compensation models.

Insider: Funding for DB Pension Plans in 2010 and 2011 Under Relief Proposals

While recent legislative and regulatory measures have given defined benefit (DB) plan sponsors some funding relief for 2009, required contributions for 2010 and 2011 have loomed large. In this analysis, Watson Wyatt projects funded status and required contributions for single-employer DB plans using an updated version of its comprehensive and realistic model of plan funding. It considers five scenarios: (1) the law prior to Sept. 24, 2009, including the Pension Protection Act of 2006 (PPA), the Worker, Retiree and Employer Recovery Act of 2008 (WRERA) and the March 2009 IRS guidance; (2) current law, including the IRS guidance released on Sept. 25, 2009; (3) House Education and Labor Committee bill (H.R. 2989) introduced in June 2009; (4) the main provisions of Representative Earl Pomeroy’s (D-N.D.) discussion draft released in August 2009; and (5) House Minority Leader John Boehner’s (R-Ohio) bill (H.R. 2021) introduced in April 2009.

Insider: SEC Votes to Change
Proxy Disclosure Rules

The Securities and Exchange Commission (SEC) has voted unanimously to propose several important changes to the proxy disclosure rules that could take effect for the 2010 proxy season. The proposal calls for new disclosures about risk and more information about directors and compensation consultants.

Insider: Health Care Reform:
The Potentially Steep Price for Doing It Wrong

In late summer 2009, health care reform seems almost within reach. President Barack Obama is urging the Congress to pass bills, and both the House and Senate are trying to deliver. There is relatively widespread agreement on the necessity of reform, but the devil is in the details.

Strategy At Work: The True Cost of Turnover

Strategy At Work: 10 Questions for Brian Schipper, senior vice president, global human resources, Cisco Systems

Insider: Hybrid Plan Sponsors Concerned About Lack of Regulatory Guidance

The Pension Protection Act of 2006 (PPA) established new rules for the operation and administration of hybrid pension plans, but plan sponsors are still waiting for guidance. The lack of final (or in a number of cases even proposed) guidance leaves hybrid sponsors in a difficult position — required to act without knowing the rules for doing so. Watson Wyatt recently conducted a survey to identify the issues most important to these plan sponsors.

Strategy At Work: Think Global, Act Local

Health care leader Roche needed a global, non-traditional DB plan that would reduce future pension liabilities and give employees added benefits responsibility, but still comply with German law.

Strategy At Work: An HR Guide for Navigating JVs

Insider: Investing in Retirement Accounts: Analyzing Influences on Choice

Portfolio selections and investment returns play an important role in accumulating wealth. Studies have established that many workers need to allocate their assets more wisely, particularly participants in defined contribution (DC) retirement plans. Measures are being proposed or are under way to encourage better informed, smarter and more effective investment. For example, on the regulatory side, the Department of Labor has encouraged a greater use of equities as part of qualified default investment alternatives in retirement accounts. The effects of these measures and policies on individuals’ investment behavior remain to be seen.

Strategy At Work: Shaping a Healthier Workforce

With buy-in from leaders and a comprehensive communication strategy, the company's wellness program sees 60 percent participation in its first year.