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Russell research: 10% decrease in funded status likely for U.S. pensions in 2011 Significant pension plan contributions on horizon as many companies will need to take action in order to avoid becoming "at risk" Tacoma, WA — June 28, 2010 — New research from Russell Investments reveals that pension plans seeking to minimize the effect of contribution requirements in 2010 will more than likely suffer a substantial decline in funded status in 2011. Based on analysis of Internal Revenue Service (IRS) valuation methodologies and Russell's own capital market planning assumptions, Russell finds that pension funded status should fall 10% on average by next year. Furthermore, many plan sponsors will then face the prospect of acquiring the "at risk" designation outlined in the Pension Protection Act (PPA)¹ and may need to make significant pension plan contributions and/or impose benefit restrictions. "Typically, a pension plan's funded status is affected by changes in the financial markets and interest rates as well as by how the plan elects to value assets and liabilities," said James Gannon, manager, consulting and investment strategy, Russell Investments. "For the past two years, plans have been smoothing the asset losses from 2008 and the fall in interest rates, but the smoothing period is soon to expire. Next year, these events must be recognized and are expected to begin to take their toll on pension funded status." The new research assumes that most defined benefit plans will elect to use smoothed asset valuation as of January 1, 2010 and a 24-month segmented yield curve for liabilities valuation, in order to minimize PPA contribution requirements for 2010. These choices will have the effect of deferring recognition of the impact of falling interest rates and asset values. "Pension plans might be able to avert a fall in funded status by switching to a different combination of valuation methods next year, but given that IRS approval is required, the likelihood that pension funds will have that option appears low," said Gannon. "For those plan sponsors seeking to minimize PPA pension contribution requirements for 2010, smoothing does make sense. As a result, the pain of higher liabilities and lower asset values will only be deferred." Request a copy of the research "The coming fall in PPA funding percentage." About Russell Founded in 1936, Russell Investments is a global financial services firm that serves institutional investors, financial advisers and individuals in more than 40 countries. Through a unique combination of interlinked businesses, Russell delivers financial products, services and advice. A pioneer, Russell began its strategic pension fund consulting business in 1969 and today is trusted by many well-known worldwide institutions for investment advice. Headquartered in Tacoma, Washington, USA and with offices in major financial centers worldwide, Russell has $179 billion in assets under management (as of 3/31/10) in its mutual funds, retirement products, and institutional funds, and is well recognized for its depth of research and quality of manager selection. Russell offers a comprehensive range of implementation services that help institutional clients maximize their assets. The Russell Indexes calculate over 50,000 benchmarks daily covering 65 countries and more than 10,000 securities. Contacts: Kate Stouffer, 253-439-1858 Matt Burkhard, 718-875-2122 ¹ "At risk" status generally occurs when plans have a funded status of less than 80%, but other considerations may also factor into that determination. Russell Investment Group, a Washington, USA corporation, operates through subsidiaries worldwide including Russell Investments. Russell Investment Group is a subsidiary of The Northwestern Mutual Life Insurance Company. Russell Investments is the owner of the trademarks, service marks and copyrights related to its indexes. USI-7092			Printer friendly version of this page

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