Mercer is proud to present its 2013 survey of senior finance executives on the subject of pension risk and risk transfer, conducted in partnership with CFO Magazine.
Many large companies are reorienting their DB plans to outcome-based strategies ensuring steady, if not spectacular, progress in improving their funded status and better protecting their plans from the uncertainty of market swings.
This year’s survey confirms what we have seen in working with our clients: continued strong support for risk management strategies such as dynamic de-risking and, more recently, increased plan sponsor interest in risk transfer opportunities. In the current survey, 67% of respondents are somewhat or very likely to offer cashouts to former employees, and 48% are somewhat or very likely to transfer liability to a third party via an annuity purchase over the next two years.
Overall, we see plan sponsors moving towards “outcomes-based” objectives, with a clear road map being drawn of how they will get from their current state to a desired level of risk over the next several years. They also are adopting a more holistic approach to risk management under which retirement programs support both financial and talent management goals.
“Our focus is ensuring certainty of outcome.”
That comment, by Mark Rogus, SVP and Treasurer of Corning Incorporated, encapsulates the mindset of many finance executives these days when it comes to overseeing the company’s financial strategies for defined benefit (DB) pension plans. Whether a company’s DB plans are open, closed, or frozen, finance executives are carefully plotting the best course through what promises to be a difficult and uneven economic landscape. In doing so, they are relying less on the vagaries of the markets and are making more use of a range of risk management strategies, as they begin to look ahead to their options for the ultimate disposition of their pension obligations.
In March and April of 2013, CFO Research, in conjunction with Mercer, conducted a study among finance executives at U.S. companies with DB plan assets of more than $100 million and revenues of at least $500 million. We conducted an online survey on the outlook for DB plan strategies, and supplemented the survey findings by interviewing a number of senior finance executives. The current research follows on a similar program CFO Research and Mercer conducted in 2011, which resulted in the publication of the report, “Redefining Pension Risk Management in a Volatile Economy.”
Finance executives have come to accept volatility as a fact of life.
Two years after that report, our research finds that finance executives have come to accept volatility as a fact of life, rather than a temporary phenomenon. In the 2011 survey, 45% of respondents stated that market volatility had had a substantial effect on DB plan policy over the previous five years. This year, 83% of respondents acknowledge volatility will be among the most important factors influencing pension risk-management strategy over the next two years. Finance executives appear to have come to grips with the fact that they need to prepare for ongoing turbulence as they manage their DB plans.
As a result, while many plan sponsors’ executives have made significant moves to manage their pension risk over the past two years, even higher numbers expect to move ahead with de-risking strategies over the next two years.