CFO Survey: Continued Volatility Will Alter Pension Risk Management

Significant changes in pension risk management are ahead, including more plan freezes and terminations and more interest in dynamic de-risking

By SHRM Online staff Dec 15, 2011
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Many corporate sponsors of defined benefit pension plans face a significant increase in pension contributions and expense in 2012, adversely affecting competitiveness, investment and job growth and possibly creating a further drag on corporate earnings and cash flow. That troubling outlook is the backdrop for the major concerns of 192 senior-level U.S. financial executives surveyed by Mercer and CFO Research Services.

More than half of the finance executives surveyed (59 percent) said that their company’s defined benefit pension posed at least a moderate risk to their companies’ near-term financial performance. According to more than half the survey respondents, the impact of defined benefit pensions on company health is a focus of attention of equity analysts and investors, and nearly two-thirds of survey respondents said it was a focus of credit analysts and rating agencies.

Respondents cited a number of factors affecting their pension plan funding, risk management and investment policies. Over the past five years, market volatility and low interest rates have had the greatest impact, coming on the heels of the higher funding requirements of the Pension Protection Act, the introduction of mark-to-market balance sheet requirements and expanded disclosure under U.S. and international pension accounting standards.

“Plan sponsors have made some efforts to manage their pension risk exposure by making a variety of plan design and investment changes. However, their efforts may not be enough relative to their benefit obligations,” said Jonathan Barry, Boston-based defined benefit risk leader for Mercer’s U.S. retirement, risk and finance business. “With no expectation for a quick recovery, plan sponsors should evaluate the effects of the recent turmoil on their future cash requirements, as well as the impact on their profit/loss statement and balance sheet.”

Related Articles:

Risk-Management Q&As for HR Professionals Who Oversee Pension Plans, SHRM Online Benefits Discipline, November 2011

Underfunding of Liabilities Seen as Top Pension Risk, SHRM Online Benefits Discipline, November 2011

Pension Plan Sponsors See Soaring 2011 Contribution Requirements, SHRM Online Benefits Discipline, October 2011

Pension Funding Hits Post-World War II Low, SHRM Online Benefits Discipline, October 2011

Six Ways to Reduce Pension Costs and Volatility, SHRM Online Benefits Discipline, October 2011

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SHRM Online Retirement Plans Resource Page

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