CFO Publishing Releases 2015 Pension Risk Survey

Lump Sum Cashouts, Buyouts, Other Derisking Efforts Increase, 2015 Mercer/CFO Publishing Pension Risk Survey Shows


NEW YORK, July 20, 2015 (GLOBE NEWSWIRE) -- via PRWEB - The Mercer/CFO Research 2015 Pension Risk Survey, "Taking the next step in pension risk management: planning to move ahead," shows that plan sponsors have been spurred to action by a 'perfect storm' of pressures on their defined benefit ("DB") plans. This year's survey results show that, in the two years since Mercer and CFO Research's previous survey in 2013, many companies have moved to action in managing risk and mitigating funded status volatility. This year's research shows a high level of satisfaction among plan sponsors (80%-90%) with various risk management actions they have taken to date. The survey data also demonstrates continuing interest in lump sum cashouts and buyout activity.

Risk transfer trends

The risk survey found that nearly two thirds (59%) of sponsors surveyed have already offered some type of one-time lump sum payment to vested DB plan participants. This trend seems set to continue, as 49% of survey participants stated their companies are likely to employ some form of lump sum payout in the next two years.

Annuity buyouts may also be on the rise – approximately a third (36%) of this year's respondents state they are likely or very likely to purchase an annuity in either 2015 or 2016.

"An increase in interest rates could lead to a fast increase in demand for buyouts. Sponsors need to prepare in advance in order to position themselves to move quickly in response to changing market conditions, said Richard McEvoy, Partner, Mercer Investment. "There's also a misconception about the cost of a buyout – most of the respondents overestimated the costs associated with annuity buyouts. Those assumptions could weigh heavily on action – or lack of – in the buyout market. During 2015, we launched the Mercer Pension Risk Exchange, offering sponsors more transparent pricing and exposing sponsors to a wider array of insurers who could potentially act as transaction counterparties. All of these factors enhance sponsors ability to capitalize on preferred market conditions for a buyout."

Navigating the changing pension landscape

During 2013, funded status improvement was attributed to rising interest rates and buoyant equity returns. Those gains were short-lived, however, as funded status plummeted from 88% to 79% throughout the following calendar year. Going forward, 70% of sponsors plan to contribute in excess of the minimum required amount. The main reasons influencing DB activity cited by 2015 survey participants included:

  • Mortality assumptions: The Society of Actuaries (SOA) updated its mortality assumptions in late 2014, reflecting an increase in longevity. These new tables were cited by survey participants as the leading impetus for sponsors (37%) when considering modifications to pension funding policies and practices in the next two years.
  • Funded status: Total funding deficit in 2014 rose and aggregate funding levels sank to 79%, a decline of 9 points from the previous year¹. Funded levels have subsequently improved to an aggregate level of 84% at the end of Q2 2015.
  • Pension Benefit Guaranty Corp. ("PBGC") premiums hike: Though not quite as influential as other factors, 27% of sponsors reported that rising PBGC premiums would affect changes in their funding policies.

"2014 was a game changer for the pension industry with factors like new mortality tables and market volatility causing funded status to decline." said Matt McDaniel, Partner, Mercer Retirement. "CFOs need to be attuned to an evolving pension market and use the best tools and resources available to develop DB strategies that make the most economic and strategic sense for their organizations."

Risk reduction as a multi-pronged approach

Interviews conducted as part of the risk survey demonstrated that many financial executives were implementing a staged approach to plan management, dividing up plan participants into segments to address separately or creating mid-range goals to achieve equilibrium.

In just a few years, dynamic derisking has moved from cutting edge to mainstream: 81% percent of sponsors indicated they had either adopted (42%) or were considering (39%) a dynamic derisking strategy to reduce risk as funded status improves. According to the Mercer/CFO Research survey, those that implemented dynamic derisking were almost universally satisfied with the outcome (87%).

Twenty-two percent of those surveyed said they have already closed plans to new hires, and one- quarter (26%) have either partially (10%) or completely (16%) frozen their DB plans to get themselves 'on sounder footing.'

Overall, the 2015 risk survey data showcased that plan sponsors have strong desire and commitment to improve funded status and stay on course with additional DB risk management efforts in 2015 and 2016.

"As market conditions continually change, plan sponsors appear focused on finding long term strategies and honing their education for the best options to mitigate risks now and in the future," said David W. Owens, Editorial Director for CFO Research and the report's author.

¹According to Mercer's tracking of funded status of the S&P 1500

About the survey methodology

In April and May 2015, CFO Research, in conjunction with Mercer LLC, surveyed senior finance executives at U.S. companies to examine the progress companies have made in managing their defined benefit (DB) plans and their outlooks for their paths forward. This research follows on similar studies sponsored by Mercer in 2011 and 2013. For this year's study, we collected 213 qualified responses to the survey, from finance executives employed at companies and nonprofit organizations with defined benefit plans that had $100 mil¬lion or more in assets. We also conducted an interview program with 10 senior finance executives at large North American com-panies with DB plans.

Download full report: http://www.cfo.com/research/index.cfm/displayresearch/14717490

About CFO Publishing

CFO Publishing and its Innovation Enterprise brand are the leading global voice in enterprise information and innovation providing access to cutting edge thought leadership content across 7 distinct channels including Finance, Big Data, Analytics, Strategy, Innovation, Digital, & Operations. We specialize in serving the information needs of the senior finance and business executive with focused and award-winning content targeted to the Chief Financial Officer, Chief Data Officer, Chief Strategy Officer, Chief Innovation Officer, Chief Digital Officer & Chief Technology Officer. In addition to content channels, our products and services include live conferences & summits, on-demand video content, webcasts, white papers, lead generation services, custom events and custom research. Whether it's delivered online or in person, everything we produce reflects the company's unshakable belief in the power of information to spur innovation within and across the communities we serve.

About Mercer

Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer's more than 20,000 employees are based in more than 40 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies, a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With 57,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit http://www.mercer.com. Follow Mercer on Twitter @Mercer.

This article was originally distributed on PRWeb. For the original version including any supplementary images or video, visit http://www.prweb.com/releases/2015/07/prweb12855662.htm



            

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