ARLINGTON, Va., and STAMFORD, Conn.—Towers Perrin and Watson Wyatt Worldwide said Sunday that their boards have approved a merger of the two firms.

The combined company, to be called Towers Watson & Co., is expected to have annual revenues of more than $3 billion.

The transaction—by far the largest in employee benefits consulting industry history—will bring together Arlington, Va.-based Watson Wyatt, which reported $1.7 billion in revenues in fiscal 2008, and Stamford, Conn.-based Towers Perrin, which also reported $1.7 billion in revenues. A decision on where the merged firm will be based has not been made, though it likely will be in the Northeast, top executives of the two firms said.

Based on the June 26 closing price of Watson Wyatt's shares, the transaction is valued at $3.5 billion.

Watson Wyatt Chief Executive Officer John Haley will serve as CEO of the merged company, and Towers Perrin CEO Mark Mactas will be its president.

The two companies say benefits of the merger include a greater depth of talent for clients and greater profitability through operating synergies. In addition, after the merger is complete, consultants will have greater access to resources and a broader network of colleagues.

“The combination will expand our global footprint to optimize service, global reach and seamless delivery for our clients,” the two firms said in a statement.

“We expect to be best in class in every business line we will operate,” Mr. Haley said during a conference call Monday. “The sum will be greater than its parts. Strategically, it will be a great fit,” he added.

“Overall, we will offer a stronger set of services,” Mr. Mactas said in an interview.

Currently, Watson Wyatt has about 7,700 employees and operates in 34 countries, while Towers Perrin has about 6,300 employees and operates in 26 countries. Together, the two firms have locations in 38 countries.

The two firms are especially well known for their expertise in retirement plan and health care consulting. Additionally, Towers Perrin offers risk management and reinsurance brokerage services.

The announcement of the merger comes at a time when the nation's major benefit consultants face growing challenges. Revenues from defined benefit pension plan consulting and actuarial services are expected to decline sharply in the years ahead as more companies phase out those plans, and the economic downturn has led many companies to put discretionary consulting projects on hold.

On the other hand, employers more than ever are turning to consultants to find new and better ways to try to hold down health care costs.

In fiscal 2008, Watson Wyatt reported net income of $155.4 million on $1.76 billion in revenues, up from net income of $116.3 million on $1.47 billion in revenues in fiscal 2007. Privately held Towers Perrin does not disclose income figures.