Pension liabilities at roughly half of Fortune 1000 companies that have defined benefit plans "pose little risk" to the financial health of the companies' core businesses, according to a Watson Wyatt study. The consulting firm calculated the potential dollar value decline in pension plans' funded status under a worst-case scenario financial market using its Pension Risk index, which compares the potential drop in funding against the company's overall market capitalization.
Companies with low risk have index values of 1% or less of their overall market value. Roughly 30% of plan sponsors had index values between 1% and 4% at the end of the 2004 plan year, and 20% had index values higher than 4% of a given company's overall market value, according to the study.
Companies with an investment-grade bond rating account for 84% of the total pension risk among Fortune 1000 companies with pension plans, while companies with junk-bond ratings comprise the remaining 16%. Companies carrying the majority of the total value of pension risk tend to be financially healthy and thus likely to weather a financial crisis, according to the study, which also found that potential risk from pension plans to the broader U.S. economy "is likely minimal."