Stable Value Funds Could Carry Considerable Risk

Watson Wyatt Suggests Steps Employers Can Take to Minimize Exposure

WASHINGTON, June 24 /PRNewswire-FirstCall/ -- In today's unpredictable market
environment, even the "safest" investments such as stable value funds carry
considerable risks that plan sponsors and participants alike might not be
aware of, according to experts at Watson Wyatt, a leading global consulting
firm. The firm suggests that plan sponsors review their existing stable value
investments and wrap contracts to ensure they are prepared if the market
suddenly changes again.

Stable value funds invest in fixed-income securities that are protected up to
the amount of their book value by "wrap contracts" issued by insurance
companies and banks. This protection is partly the reason stable value funds
have long been considered among the most secure investments participants can
make in their 401(k) accounts.

However, the recent market turmoil has affected both the underlying
investments as well as their guarantees. Watson Wyatt investment consultants
cite two major areas of concern: the loss of book value of investments due to
credit rating deterioration in the wrap issuer structure, and wrap issuers
exiting contracts, which could drive the fund's crediting rate rapidly lower.

"It's hard to have the 'stability' in stable value funds without a financially
sound wrap contract structure," said Sue Walton, senior investment consultant
at Watson Wyatt. "Without a change in the current market, the trend toward
higher fees and fewer providers is likely to continue. Neither of these shifts
is beneficial for sponsors and participants."

Experts at Watson Wyatt recommend plan sponsors take certain steps to ensure
that stable value investments continue to deliver what is expected.

1. Examine the quality and integrity of the wrap structure to better
understand how stable value funds are constructed and the different
participants and roles involved -- the portfolio managers, wrap contract
issuers and recordkeepers.

"In this environment, the best security for a sponsor is knowledge," said
Walton. "We suggest they seek answers to the tough questions -- What is our
contingency plan? How would a downgrade or default of a wrap contract issuer
be handled? How much credit exposure does the issuer have? -- to make sure
they are in a position of strength if the unexpected occurs."

2. Conduct stress tests to gauge the potential negative effects from
contingencies such as interest rate changes, further credit spread widening
and defaults, and changes in the wrap structure. This will enable an investor
to determine risk factors and quantify the possible consequences of further
market turmoil.

"Although recent events demonstrate that risks exist, stable value funds
remain one of the safest investments available to 401(k) participants," said
Carl Hess, global head of investment consulting at Watson Wyatt. "However, as
with all investing, it's wise to be proactive and keep an eye on investments.
In this case, preemptive measures together with good communication can also
help keep employees aware about their funds."

For more information, please visit: www.watsonwyatt.com/stablevalue.

About Watson Wyatt Investment Consulting
Watson Wyatt Investment Consulting, a division of Watson Wyatt, is focused on
creating financial value for institutional investors through independent,
best-in-class investment advice. We are specialist investment professionals
who provide coordinated investment strategy advice based on expertise in risk
assessment, strategic asset allocation, and investment manager selection.

Watson Wyatt Investment Consulting provides investment advice to some of the
world's largest pension funds and institutional investors, and has more than
550 associates in Europe, the Americas and Asia.

In the U.S., investment advisory and investment consulting services are
provided by Watson Wyatt Investment Consulting, Inc., which is a subsidiary of
Watson Wyatt Worldwide Inc. Watson Wyatt Investment Consulting, Inc., is a
registered investment adviser with the Securities and Exchange Commission.

About Watson Wyatt
Watson Wyatt (NYSE, Nasdaq: WW) is the trusted business partner to the world's
leading organizations on people and financial issues. The firm's global
services include: managing the cost and effectiveness of employee benefit
programs; developing attraction, retention and reward strategies; advising
pension plan sponsors and other institutions on optimal investment strategies;
providing strategic and financial advice to insurance and financial services
companies; and delivering related technology, outsourcing and data services.
Watson Wyatt has 7,700 associates in 34 countries and is located on the Web at
www.watsonwyatt.com.

SOURCE Watson Wyatt

Ed Emerman for Watson Wyatt, +1-609-275-5162, eemerman@eaglepr.com; or Steve
Arnoff of Watson Wyatt, +1-703-258-7634, steven.arnoff@watsonwyatt.com