Despite Financial Crisis, Finance Executives Remain Committed to Defined Benefit Plans

When Towers Perrin conducted its first pension risk study with CFO Research Services in 2007, our final report was titled Pension Plan Risk: Using the Calm Before the Next Storm. Little did we know that the next storm would follow so soon or with such intensity.

Our third annual survey explores senior finance executives' views on their company's defined benefit (DB) pension plans in the United States, Canada and the United Kingdom.

Some highlights of the findings include:

• Finance executives acknowledge that most DB plans have been battered by the deep economic recession, but a clear majority — 71% — is committed to long-term plan viability rather than finding alternatives. However, their commitment may waver if economic conditions worsen or if regulations become too onerous.
• Nearly 60% of respondents are primarily concerned about the impact of DB plan funding requirements on cash flow, and there is a move by some companies toward "explicit" funding targets or "minimum payments" instead of a full-funding strategy.
• Sponsors that seek long-term viability are consistently more likely to use financial instruments (interest-rate swaps, currency forwards, etc.) and anticipate increasing their use of these instruments in the years ahead. 

These and other findings are examined in the survey report A Qualified Commitment to DB Plans: Risk Management Amid a Steep Downturn. The research reflects more than 400 survey responses from finance executives in the United States, Canada and the United Kingdom. In addition, a number of interviews were conducted with finance executives to bring additional insight to the survey report.

To learn more about this survey's results and what they could mean for your organization, contact us via e-mail or contact your local Towers Perrin office.