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CFO Survey Indicates Pension Plans Need Careful Monitoring

While funding is the concern of financial executives, HR Leaders need to be aware of the growing funding questions being addressed.

A recent study by Mercer found:

Faced with ongoing volatility, well over 70% of respondents somewhat or very likely to employ  liability-driven investing and/or dynamic de-risking strategies

  • Some 67% of financial executives surveyed say their firms are somewhat or very likely to offer cashouts to former employees
  • In the next two years, 48% of those surveyed are likely to transfer pension liability to a third party through an annuity purchase

Plan sponsors’ executives are taking decisive action to reduce exposure to pension financial risk, according to a survey of 177 financial officers conducted by CFO Research in conjunction with Mercer.  The full report may be accessed at

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.

About half the companies reprented in the survey (49%) are currently matching the duration of fixed-income investments to DB plan liabilities and 43% are employing dynamic de-risking which shifts assets into lower-risk categories as the company’s funded ratio improves.

“Overall, we see plan sponsors moving toward ‘outcome-based’ objectives, with a clear road map for getting from their current state to a desired level of risk over the next several years,” said Jonathan Barry, Mercer’s US Retirement DB Risk Leader. “They are adopting a more holistic approach to risk management which integrates plan design, risk transfer and investment management strategies.”

“As funded ratios improve, additional de-risking becomes both more attractive and more feasible,” Mr. Barry noted. “At the end of May, 2013, pension funding levels for the S&P 1500 stood at 86%, the highest level in nearly two years. This compares to an estimated 74% at December 31, 2012, and the record low of 70% at the end of July, 20121. This improvement dovetails nicely with


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